Nexus: A Four-Point Refresher
Tax auditors may inquire as to whether affiliated companies:
● overlap directors and officers;
● share employees;
● intermingle their finances;
● sell out of a common inventory;
● lack arms-length intercompany transfer pricing for products and services; and
● integrate most management, administrative tasks.
The auditor tries to prove that the affiliated companies are managed, financed and operated as a single entity and thus should be treated as one company for tax purposes.
4. In-State Ownership of Tangible Personal Property
Even though a cataloger may have no facilities or personnel in a state, merely holding legal title to tangible personal property may create nexus. For example, you may own inventory in the warehouse of a company that provides fulfillment services, or a retailer that owns raw materials being processed at an in-state factory (e.g., textiles to be cut and sewn into apparel).
Even ownership of rolls of paper at an in-state printer could con-
stitute a sufficient “physical presence” to create nexus. (A number of states, however, have enacted safe-harbor provisions to exclude the ownership of paper and printed products located at a printer’s premises.) There may be relatively easy alternatives to holding title to personal property, while still enabling you, the direct marketer, to retain unfettered access and control over materials.
George S. Isaacson is a senior partner with the Lewiston, Maine-based law firm Brann & Isaacson. He represents multichannel merchants on tax matters, and is tax counsel to the Direct Marketing Association (DMA). Reach him at gisaacson@brannlaw.com.
