Preparing for E-Commerce Taxation: The Nexus Issue
Any tax professional whose clients do business over the Internet needs to be aware of the new or different tax obligations those clients may face. Because doing business online has become easier and more accessible to everyone, even small, general tax practitioners may find themselves advising individuals and small business clients on the tax impact of engaging in e-commerce.
While there currently is a moratorium on sales and use taxes on Internet transactions, the companies themselves are still subject to federal, and possibly state, income taxes on their profits. To determine a client's potential exposure to e-commerce taxation, a CPA first should establish that nexus exists. The practical issue companies face is "creeping nexus" as they continue to grow and their business activities increase across statelines. CPAs, more than anyone else, know the importance of accurate business records, but some--at their peril--might rely on old information about the company's business activities rather than update their records.
Following is a list of questions that will help a CPA determine whether a client's Internet business is exposed, through nexus, to possible state or local taxation. …