Sales Tax Secrets: When Servers Give You Nexus

The virtual world, as we learned last week in our discussion of video games, is posing new challenges to legislators when it comes to sales tax. While Internet sales tax is being discussed in congress, states are addressing laws like nexus on their own terms.

Typically, nexus is established when a company has a physical presence in a state. As we learned with Scholastic, this could be anyone selling or promoting the sale of goods. It could also be a warehouse, an office, or a call center. Now, however, the presence of a server may establish nexus for some states.

While a server may not house tangible objects, it is essential to the functioning of many companies. It’s not only a store of information but an office unto itself. That means, if your company houses a backup server in another state, you may well have nexus. In order to find out, look at that state’s definition of nexus, and if you’ve met it, make sure you’re charging proper sales tax.

Many states go by the bare minimum when defining nexus. For example, Arizona states that an employee spending two days per year in the state qualifies as nexus. Even if the server didn’t qualify as real and personal property, the employee checking in on it establishes nexus. When real estate shopping for your real property, make sure to check out how much it takes to make nexus in the neighborhood.