Earlier this year, we published an article outlining 5 things businesses should consider before incorporating in Delaware. Since then, we have heard quite a few questions about the importance of ‘nexus’. In this article, we’ll provide a basic overview of nexus for corporations.
So, what is nexus for corporations?
Generally speaking, a corporation has a nexus with another state when it conducts certain actions within that state. The exact requirements vary from jurisdiction to jurisdiction, so we are speaking broadly here. If you need specific details about a certain state, we suggest you consult with local counsel.
Depending on the state, the following may establish nexus:
- A physical presence, including an office or storefront.
- Remote employees.
- Sales in excess of the state threshold for establishing a tax nexus.
- Warehousing arrangements.
- Property within the state.
- Click-through relationships that direct web traffic.
- Affiliate programs, where independent businesses sell through other businesses (like Amazon, Etsy, and the like).
Triggering Events Establishing Nexus in Other States
Because the nexus requirements vary from state-to-state, we can’t comprehensively cover all the events that establish nexus in other states. We have created a list of events or milestones that may result in your business being deemed to be ‘doing business’ in another state. It is intended to be general and is not complete. Again, we suggest you consult local counsel to ascertain whether your business activities may result in a nexus being established.
Events that may establish a nexus:
- Hiring a remote employee.
- Selling products online, through a retailer, or via your own storefront.
- Taking on a major client, or a number of smaller clients, in one state.
- Developing supplier relationships with resellers.
- Attending a trade show or convention.
- Sending a consultant or advisor to provide services.
- Foreign registering in that state.
- Storing property for sale in a state.
- Developing online referral relationships in exchange for commission.
- Sending a travelling salesperson to a state.
A Note About Nexus for Corporations in California
It’s not advisable to use the California nexus requirements as a baseline for other states. We have noted that nexus requirements vary from state-to-state – and California’s sales thresholds are relatively high. California’s threshold for economic nexus is $500,000. However, the threshold in many other states is $100,000 in sales or 200 transactions over a 12-month period.
If you’re uncertain about the impact of your business activities on your corporate compliance, reach out. We’re here to help!
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