Grant  Gilmour
Grant Gilmour

Tax Question:

Do you know what a Nexus is and what it means for tax purposes?

Facts:

There are two very different things called Nexus when we talk about cross border trade:

  1. The one we talk about here is Nexus for income and sales tax; meaning is there is tax due because of Nexus
  2. The other is a Nexus card that is a form of identification used by “trusted travellers” when they cross the border

Discussion:

Nexus for tax refers to whether your business has a responsibility and liability for income and/or sales taxes in a particular state, province or country. The word Nexus is usually used by tax practitioners when talking about United States of America (USA) income or sales taxes but it does apply in a general concept all around the world. There is a famous court case that USA practitioners refer to that discusses Nexus and physical presence in a state. This court defined threshold is increasingly being replaced by law makers writing specific definitions into their commerce laws. For example, in Washington State:

A non-resident individual or a business entity that is organized or commercially domiciled outside this state, and in the immediately preceding tax year the person had:

  1. More than fifty thousand dollars of property in this state;
  2. More than fifty thousand dollars of payroll in this state;
  3. More than two hundred fifty thousand dollars of receipts from this state; or
  4. At least twenty-five percent of the person’s total property, total payroll, or total receipts in this state.

The Washington State definition does not require physical presence. Having enough sales volume can trigger Nexus and thus Washington State tax. The point is that each state/province/country can have its own definition and thus definitions can be different. This makes learning the rules in every jurisdiction you do business in or with important because things like a sales volume threshold can be crossed without you having physical presence.

Contact us to learn more about Nexus and how you can be caught offside or plan to be onside and save taxes as result.

Grant Gilmour, BSc (Hons), MBA, CPA, CA, CICA – ITC
Partner, Gilmour Group CPA’s
Email: faqs@gilmour.ca
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