Understanding New State Tax Nexus Rules in the Digital and Remote Era

• Nexus refers to the connection between a business and a state that allows the state to impose tax obligations
• Internet activities and remote workforces now significantly influence nexus
• New state tax nexus rules affect remote online sellers and companies with remote employees
• The COVID-19 pandemic led to an increase in remote employees, prompting states to modify nexus rules to increase tax revenues
• The Wayfair decision broadened nexus to include economic activities, not just physical presence
• Technological advancements in digital goods and services are prompting states to reassess nexus rules
• Understanding state nexus is crucial for making informed decisions about state tax implications and reducing tax liabilities
• State tax nexus determines a state’s ability to tax a business based on the level of business activity in the state
• Nexus was traditionally established through physical presence like employees or operations within the state
• Many states now include economic and digital presences in their nexus definitions due to the rise of remote sales and e-commerce
• Physical presence nexus involves tangible presence in a state and can trigger various state tax requirements
• Economic nexus is based on a business’s economic activity within a state, such as sales or transaction thresholds
• States are updating economic nexus statutes to capture tax revenue from remote and digital businesses

Source: claconnect.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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