How to Help Clients Navigate Nexus: A Guide for CPAs and Accountants

As your clients’ businesses expand their operations across state lines, it is crucial for your firm to help them understand and manage tax nexus. They may require advice on the most economically advantageous locations for new offices, stores, or warehouses to optimize their overall tax burden.

For CPAs and accountants, guiding clients through the intricacies of tax nexus also means monitoring and ensuring compliance and optimizing tax strategies.

Here are a few things you should know about assisting your clients.

What is Nexus?

Tax nexus is a legal term that signifies the connection between a business and a state (or specific jurisdiction) and requires the company to comply with the state’s tax laws.

Expanding beyond the boundaries of the business’s home state means the company must register, collect, and/or pay taxes within that state. The challenge, however, lies in the varying definitions of nexus across different states and the frequent updates to these definitions.

Understanding nexus regulations is critical so your CPA firm can ensure your clients stay compliant with state and local tax laws, avoid paying penalties and interest, and prevent potential legal issues associated with non-compliance.

Types of Nexus

Physical Nexus occurs when a business has a tangible presence in a state, such as an office, store, or warehouse.

Economic Nexus is achieved when a business reaches certain sales thresholds in a state, even if it does not have a physical presence. Most states require businesses to collect and remit sales tax if they exceed $100,000 in sales or 200 transactions annually in that state.

Income Nexus is established when employees work in a state other than where the business is headquartered. Employers must comply with the payroll tax rules of the state where the employee works.

Affiliate Nexus occurs when an out-of-state company has affiliates in another state that refer business to it for a fee. This includes click-through nexus, which is established through online affiliate marketing links.

Compliance and Registration

To ensure compliance, businesses must:

• Register: They must apply for a sales tax ID number or seller’s permit in all the states where they have any type of nexus.
• Collect and Remit Taxes: Collect sales tax from customers in states where they have nexus and remit it to the appropriate state authorities.
• Maintain Records: Keep accurate records of sales and tax collected to be prepared for audits.

Optimizing Tax Strategies

Strategic Tax Planning

Help clients minimize tax liabilities by strategically planning their operations. Factors such as physical presence, sales, and employee locations determine how much tax is owed. For instance, it may be advantageous for businesses to avoid establishing physical nexus in states with higher tax rates.

Leveraging Technology

Utilize tax software solutions for tracking and managing nexus. Most payroll services take care of nexus issues, making compliance more manageable.

Regular Consultations

Schedule regular consultations with your clients to review and update their nexus status. This proactive approach ensures they remain compliant with the latest tax laws and regulations.

Practical Tips for CPAs and Accountants

• Stay Informed: Nexus regulations frequently change, especially today with the stratospheric rise of e-commerce and remote work. It’s essential to stay updated on these changes to provide accurate advice to your clients. Subscribe to tax news publications and alerts to stay ahead of changes in nexus laws.
• Educate Clients: Help your clients understand what nexus is and its implications for their business operations.
• Utilize State Guides: Use state-specific guides (LINK TO CORPNET’S ARTICLE IF ALLOWED) on nexus to ensure you have accurate information for each state your clients operate in.

Navigating nexus is essential for maintaining compliance and optimizing tax strategies, especially in today’s increasingly complex tax environment. As CPAs and accountants, your role is crucial in guiding clients through these complexities. By mastering the intricacies of nexus, you can provide invaluable support to your clients, helping them confidently navigate multi-state tax obligations.

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Nellie Akalp is a passionate entrepreneur, recognized business expert, and mother of four. She is the CEO of CorpNet.com, the smartest way to start a business, register for payroll taxes, and maintain business compliance across the United States.  Loved by entrepreneurs, accountants and lawyers, CorpNet offers transparent pricing and a simple ordering process. Payroll service providers and larger firms appreciate CorpNet’s quickly scalable software and API solutions.