Navigating Sales Tax Nexus

Below is an edited transcription of the IGC episode: Navigating Sales Tax Nexus, recorded November 1st, 2022. In this episode, Nellie Akalp, CEO of CorpNet, a company that is an excellent resource for CPAs, other accounting firms, and small business owners in the area of state tax compliance entity information in the 50 states.

• Why is it so critical for small businesses today to comply with tax and other compliance laws in the various states they do business in?

Whether it's to run payroll, pay your taxes or collect sales and use tax, you're preventing yourself from a ton of fines and penalties and, worst case scenario, ending up in jail because the IRS will come after you if you're not in compliance. I would say if we were to break it down as follows:

As a tax professional or business representing clients, you are an advisor. Your clients are counting on you to ensure you have all the information they need to ensure they are running their business and have all their eyes audited and their team prompts.?

As small business owners, they're trying to do this on their own, and they need to make sure a trusted professional will be able to educate them and walk them through the steps and all the ins and outs of what is required for their business to remain in compliance.

• How can business owners ensure that their companies comply with the state?

As a corporation or an LLC if a business owner is running their company as a corporation or an LLC versus a sole proprietorship or a partnership, they have taken the necessary steps to place that business into a corporation or an LLC. Hence, they must ensure that their business remains in ongoing compliance to prevent any piercing of the corporate sale. If their corporation or LLC goes out of compliance and into bad standing for any reason, they end up on the wrong end of a business lawsuit which can make a shareholder lose their assets.

• Do you help business owners navigate all the different types of state registrations for their companies?

Yes, we do. We do research and help them get the state registrations they might need for their companies. We have a 50-state online registration process for state payroll tax registrations and account setup. For example, you have a client who has a corporation or LLC. That corporation or LLC has its home state in California but now hires employees in four other states: New York, Pennsylvania, New Jersey, and Iowa. They must register and set up payroll tax accounts if they hire employees in those other states. In addition, due to state requirements, they may also need to forum qualify that corporation in those states because of state nexus issues.

• What exactly does Nexus mean?

Nexus means that if you have a connection with another state, a substantial amount of relationship within other states, or if a business has a significant amount of contact with other states, Nexus can take various forms. For example, when a company hires employees in other states and pays them through payroll or if they are now accepting funds or charging attacks for one of their clients in another state, they have a business and the actual storefront in the other states. So there are multiple ways a company, whether a sole proprietorship, partnership or corporation, or an LLC, can form Nexus in other states.?

• What is one example of a way of establishing Nexus in a company??

Our company is a 50-state service company that offers business formation, entity formation, compliance services, and state tax registrations and employees in all 50 states. Our home state is California because the majority of the shareholders of our company reside in California. However, we do substantial business in the other 49 states. Still, we have to foreign qualify our California corporation in those other 49 states to do business in compliance with those state laws.?

Additionally, we have payroll and run payroll in those other 49 states. Why? Because we have employees in those other 49 states, and those employees are receiving a paycheck from us. We must register and set up payroll tax accounts in those 49 states. A payroll tax account is making sure you're set up with your state unemployment insurance account and your state income tax withholding account in every one of those states. Now, some states require only one registration to give you both versions. Other states will need you to register separately for the FBI or the state income tax withholding account.?

So, do CPAs, accountants, and tax professionals come to you to get help setting up business accounts?

Yes, they do because they need more time to do all the research and so many nuances that are different from one state to another.

Suppose a business owner or a CPA wants to ensure that their home state corporation complies with all the requirements within their home state. What is the process, and how can they find you?

First, we will make sure that the corporation is in good standing. After that, we will ensure they file all their compliance requirements with the state on time. If the company is in good standing, it will get a certificate stating that the corporation is in good standing. Then they would go and qualify by filing what is called a certificate of authority of doing business within those other states they're planning to do business in. Then the foreign qualification is the first step. Then once the company is qualified in those other states that they will be running payroll, charging the sales and use tax, they would set up the payroll accounts within those days. And then once those payroll accounts are set up simultaneously, if they're also collecting some tax, whether it's a sales tax or a use tax, they would also be setting up and applying and registering for those sales and use tax accounts.

And we, as Corpnet, can help in all those steps in all 50 states. For those of you who have questions or need any of the types of services, you can simply visit us at www.corpnet.com.You can pick up the phone and dial 1-888-449-2638, or you can send us an email to [email protected].

Watch the full episode to learn more about tax nexus and tax compliance in the 50 states at this link, or visit our page and browse all the past episodes at this link.

Remember that if you need help planning your tax strategy for the year-end or need assistance with financial planning, we can help. Just send us an email to [email protected]