How The IRS Handles Nexus

Nexus is a term describing connection. If an individual has nexus to any state, there is the possibility of having tax responsibility toward that state. Nexus exists when you own real or personal property, sell products or services, hire employees or live in a given state. It is imperative to be aware of any possible issues arising from nexus.

IRS Nexus For Vendors

For vendors, having nexus in any state carries the potential of being required to collect that state’s sales tax and render it to that state. Nexus carries a similar liability with income tax—connection to a state might imply one’s status as an income taxpayer.

The Supreme Court had a longstanding rule that businesses had to have a brick-and-mortar establishment in any state which proposed to collect taxes from it. But in the cyber-age, sales tax was hardly an issue anymore; until that is, the so-called Amazon Tax Laws began cropping up. Colorado, New York, Rhode Island and North Carolina are just a few states which have regulated Internet sales in this way. Business owners must research their particular situation thoroughly to determine their state of nexus. Internet sales can make this a tricky endeavor.

Nexus Statute of Limitations

Federally speaking, taxpayers enjoy statutes of limitation of 3 years for audits and 10 years on back taxes, after which the IRS must drop pursuit, barring the possibility of tax fraud. The taxpayer’s state may have different limitations. Each state has its own rules on the length of time they can chase down taxpayers for audits or unpaid taxes. Filing in several states concurrently requires even more financial record-keeping vigilance.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.


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