Page 364 - JoFA_2022

A company can mitigate its

overall exposure to an

assessment of sales and

use tax by a state by being

proactive and performing a

voluntary disclosure with

the state.

discusses the issues faced by some businesses that
registered due to the economic nexus standard, as About the
well as businesses that have not registered, how author
to challenge an assessment, and what to do to
David J. Brennan
mitigate a company’s exposure.
Jr., Esq., LL.M. (Tax),
is a senior attorney
RESPOND TO NEXUS INQUIRY LETTERS at Moffa, Sutton,
CAREFULLY
and Donnini PA, a
A state usually will have information about a com-
Fort Lauderdale,
pany’s activities in the state and an idea of what it is
Fla.-based firm,
looking for when it makes contact with the business
which has a
regarding tax nexus — a term that refers to the
primary focus on
degree of contact a person or entity must have with
state and local
a jurisdiction before being subject to taxes there.
taxes. He was a
t has been more than four years since the Supreme A standard first document for a state taxing
senior attorney
Court held in South Dakota v. Wayfair, Inc., 138 authority to send a business that it thinks may have
at the Florida
IS. Ct. 2080 (2018), that a state can require busi- nexus with a state is a nexus inquiry letter. This let-
Department of
nesses to collect sales tax under an economic nexus ter may or may not be paired with an audit notice.
Revenue from
standard if they have a sufficient level of sales into The nexus letter is typically a questionnaire for the 2014 to 2016. He
IMAGE BY JAVIER ZAYAS PHOTOGRAPHY/GETTY IMAGES holding are becoming clear. a tax registration requirement with the state. Even his contributions
business to fill out. The questionnaire’s purpose is to
the state, even if they have no physical presence
would like to thank
determine whether the business has nexus and thus
there — and the practical results of the Court’s
Joseph Moffa for
Many businesses have begun and continue
if a business has already registered for sales tax in
to the article.
the process of determining where they may have
a state, the state’s taxing authority may send an
sales tax exposure under an economic nexus
inquiry letter if it believes the business should have
standard in states where they do business and
registered sooner than it did.
of registering with states where they believe
The letter may focus broadly on a “tax” registra-
tion requirement as opposed to a specific tax type,
they have nexus. State taxing authorities are
beginning to audit entities that registered due
information for the purpose of determining the
to having economic nexus in a state. This article
journalofaccountancy.com as the questionnaires usually attempt to elicit September 2022 | 7