This is a controversial area. Most companies are aware and usually comfortable with the idea that if they have employees or actual office locations in a state that they would have nexus. They struggle with the idea that otherwise unrelated third parties can also give them nexus depending on what they do. As we discuss in our webinars on nexus, it's pretty well settled, in most states, that if you use a subcontractor to do installations, repairs, construction or the like, that you will have nexus in those states. But let's look at some more activities by related and unrelated third parties and see what the states say about whether these would give you nexus also.

• For example, what about affiliated entities? Can the fact that you have a sister company in another state give you nexus in that other state just by virtue of your corporate affiliation?
• What if all you do is send someone to buy some tangible personal property from another state for you? Do you have nexus?
• How about using an unrelated third party to do warranty repairs where there is no charge for that repair? What if there is a charge for the repair? Do either of those give you nexus?
• What states say that merely arranging for installation or maintenance to be performed by a third party create nexus in their state?
• Does using a third party to do training in another state or to do "troubleshooting" create nexus all by itself?
• Does hiring a telemarketing firm in another state give you nexus in that state?
• If you attend a seminar less than 4 times in another state, which states consider that a nexus creating activity? What states have special rules for attending trade shows?

And The Survey Says...?

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 taxability. 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.