By Andrew Johnson
Trade shows and nexus — it’s one of the grayest areas of nexus analysis. Attending trade shows for many companies is a primary way of generating new business or nurturing relationships with existing customers. Companies may not fully understand the nexus implications of trade show attendance. Our experience is that companies either are hyper-sensitive to this issue meaning they believe that simply attending a trade show in any state creates nexus or they are blissfully unaware that nexus may be lurking because of trade show activities. As usual, the correct approach is somewhere in the middle. When we think of trade shows and nexus, we break it down into three general levels of participation.
- Consumer Level — Not there to exhibit goods or make sales.
- Exhibitor Level — Not only there to review others’ exhibits but also to man your own booth.
- Vendor Level — Actually making sales of products at the show.
Most companies have at one time or another sent employees or sales representatives to participate in trade shows at one of these three levels. The shows may be held in states where the company does not otherwise have nexus or physical presence. There is not much guidance from the courts on whether attending trade shows, by itself, creates nexus. And we know that as of this writing, there is no federal law on sales tax nexus. So all we have to go on is individual state tax law, regulations and policy. That’s what makes this issue difficult.
Most states would assert you have a tax collection obligation when you attend trade shows as a vendor. They vary in their treatment of nexus. They may say that you have nexus because of the activity and therefore have an obligation to collect sales tax on all your sales into that state. Or on the other end of the spectrum, they may require you to simply collect and remit the tax on sales made at the actual trade show.
The next level of participation is as an exhibitor where you make no sales but just demonstrate or talk about your product or service. Fewer states consider this activity to create nexus, but many still consider it to create the sales tax obligation.
Finally, if all you do is attend a trade show as a consumer, almost no state would assert that minimal level of activity creates nexus. But a few do. If you’d like to see which states have laws, regulation or policies that state that simply attending a trade show creates nexus, even though you do not exhibit or sell any products at the show, then you’ve come to right place. Trade shows creating nexus chart.
When reviewing the chart, it is important to note that the three – four year assessment periods only apply to those companies who have registered and filed returns. If you have not registered and filed returns, these limitations do not apply and in theory the state can go back to the day you started doing business, although they generally only go back seven to ten years.
I hope this chart is helpful. We also can produce a chart of income/franchise tax and a chart for refunds, if you’d like. If you have any questions, please give us a call.
About Peisner Johnson and Company, LLP
We Have a Chart for That — You might call it a Tax-ability Matrix or a Tax-ability Chart, the name is not important. We have various tax matrices already put together based on survey questions made to the states each year. But remember, this chart is the result of a survey performed by the states and is research provided to us by CCH. The charts are fantastic resources, but cannot substitute for professional advice based on your specific facts and circumstances. By all means, have a look at the charts we can provide but then do your own research and consult an expert.
What’s the Best Way to Get Answers to Your State Tax Questions?
CALL THE STATE? — This may not be the best thing to do. Clients frequently remark that when the call the state for guidance, they often get hazy and even conflicting answers. We usually say that it’s not that people at the state don’t know what they’re talking about. In fact, if you get a hold of the right people with expertise in your industry, and they understand your question correctly, then you can almost always trust the answer you get from them. Just try to get the answer in writing, so you’re protected in the event of a future audit.
But you have to get the right people and you have to phrase the question appropriately using correct terminology so that misunderstandings are avoided. Certain words carry meaning in the sales tax world that might not be immediately apparent to a non sales tax person. Sales tax is much more a “form over substance” type of tax than income tax and how things are worded in a contract or invoice can be crucial to the tax ability. How a question is worded can also make a big difference. Don’t get me wrong, I’m not saying there’s some sort of trick or code language that you must conform to or else, I’m just saying that you want to understand all the implications of the words you choose in asking for guidance so that you get the most accurate answer.
Plus, how do you know if you got the whole answer on your situation? You may have described your facts and circumstances accurately but left out something that you did not think was important. The answer you get would be dependent on the facts you presented. But in reality, the answer you get may not be appropriate when you consider all the relevant facts.
GOOGLE IT? — With so much information available on the Internet these days, you can Google your question and chances are, you’ll find something that seems to match your situation. The problem here, of course, is, does this answer really apply to your situation? Is there another contradicting ruling or law on this matter? Has this item you found been superseded?
GET A RULING? — What if there is no law, regulation, court case or state ruling that addresses your exact situation? Yes, this does happen and quite frequently. State revenue departments have not produced answers to every possible question. This is in stark contrast to the IRS, where it seems that no matter what situation you face, there is a regulation or revenue ruling or court case that addresses it on point — it’s just a matter of finding it. At the state level, we frequently run into situations where there is simply no documented answer to your question. In this case, we usually recommend obtaining private letter rulings from the revenue departments. Each state has their own procedure. We usually recommend only seeking a letter ruling where you have already discussed the question with a subject matter expert at the state, and gotten a pretty good idea of what you’re going to get in the ruling. It’s not always possible to do, but you don’t want bad precedent, if you can help it.
ASK THE EXPERTS? — Have you tried calling the state or just searching the Internet and came away wondering if you got the right answer? Have you considered asking an expert? You probably have, but hesitated, considering the cost. Well, this is what we do — We Solve State Tax Problems.
And, we don’t always charge for this service. How can that be, you ask? We subscribe to just about every service available and can find just about any law, regulation or court case that would bear on your facts and circumstances. And more than that, we use our many years of experience to evaluate your facts to form the correct questions. With that experience we can draw conclusions you can rely on. And we maintain contacts with key state personnel that we can confirm how the state will treat certain transactions that fall in gray areas.
Sometimes we just flat know the answer to a question you have. We always tell our clients: “If you have a question, just call us or email us. If we can answer you off the top of our heads, we’re not going to charge you. If we need to do some research, we’ll tell you before we do the work and seek your approval before we do it.” You can expect no surprise invoices from us.
So What Questions Do You Have?
Like we said earlier, we can deal with any state tax question you can think of. Of course, the answer to many questions we get is, “it depends!” And that may sound like a cop out, but it really does depend. The answer depends on which state we’re talking about number one and then on other possible variances in the facts. One of the helpful resources we subscribe to is provided by CCH. And one of the resources they give us access to are certain charts or tax matrices.
CAUTION ON CHARTS –A big word of caution is in order when it comes to charts. A chart is just a starting place when you want to do some research, and not the final answer by any means, but it’s still interesting and insightful. One particular chart they provide is unique in that it is based entirely on surveys of actual state tax departments and as such it is a good representation of state tax policy. But it is just state policy and this survey is not binding on them. Sometimes, a state’s own policy is at variance with the law, so take this with a grain of salt. But, it still makes for good state tax conversation. We’re here to help, give us a call.