Remote Seller in U.S.: Income Tax Nexus
Physical presence was previously the only consideration where income tax nexus is concerned. But this standard was largely replaced by an economic presence/factor presence nexus concept by many states. Just like the sales tax nexus, the income tax nexus better fits the expanding use of e-commerce. States using the economic presence/factor presence nexus standard can impose tax on qualified out-of-state companies, even if they do not have a physical presence in the state.
The Multistate Tax Commission (MTC) adopted a factor presence nexus standard model statute in 2002. Many states are applying a factor presence nexus standard to provide a more certain numerical standard in addition to the economic presence (“doing business in the state? standard for determining the income tax obligation. Under factor presence nexus, an out-of-state company has income tax nexus if it has property, payroll, or sales that exceed certain thresholds in the state during the tax period
States?thresholds for income tax nexus vary. The below chart provides you with a summary of the income tax nexus thresholds by state. Please note that states may adjust their thresholds on an annual basis. For more details, please consult with our consultants.
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State
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Income Tax Nexus Threshold
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Alabama
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$54,000 of property;
$54,000 of payroll;
$538,000 of sales; or
25% of total property, total payroll, or total sales.
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California
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$63,726 of property;
$63,726 of compensation paid;
$637,252 of sales, including sales by agents or independent contractors; or
25% of total property, total compensation paid, or total sales.
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Colorado
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$50,000 of property;
$50,000 of payroll;
$500,000 of sales; or
25% of total property, total payroll, or total sales.
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Connecticut
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$500,000 (“bright-line?test) of receipt
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Hawaii
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$100,000 of gross revenue attributable to Hawaii;
200 or more separate transactions during the previous or current calendar year;
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Maine
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$250,000 of property;
$250,000 of payroll;
$500,000 of sales; or
25% of total property, total payroll, or total sales.
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Massachusetts
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$500,000 of in-state sales.
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Michigan
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Income tax nexus is established if the taxpayer actively solicits sales within the state and gross receipts from state sources is at least $350,000.
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New York
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$1,138,000 of receipts from activity in the state; or if it:
?/SPAN> Has issued credit cards 1,000 or more in-state customers;
?/SPAN> Has merchant customer contracts covering at least 1,000 locations in state; or
?/SPAN> The sum of the number of customers plus the number of locations covered by its contracts equals 1,000 or more.
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Ohio
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$50,000 of property;
$50,000 of payroll;
$500,000 of gross receipts; or
25% of total property, total payroll, or gross receipts during the calendar year.
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Pennsylvania
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$500,000 of direct or indirect gross receipts sourced to the state
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Tennessee
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$50,000 of property;
$50,000 of payroll;
$500,000 of receipts; or
25% of total property, total payroll, or total receipts.
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Texas
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Texas revenue of $500,000 or more in the preceding 12 calendar months.
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Note: States may take the position that factor-based standards are an alternative way to establish nexus; if so, then nexus might still be established even if the taxpayer does not meet the numerical thresholds. For your specific case, please consult with our consultants.
[Reference]:
https://answerconnect.cch.com/topic/b43988327c6c1000a1f2d8d385ad169407/income-tax-nexus
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