Articles · Basics · State and Local Tax (SALT)
State Income Tax Nexus and P.L. 86-272
Nexus is the connection that allows a state to tax a business. A company operating across state lines needs to know where its activities create a filing obligation.
Types of nexus
Physical nexus arises from offices, employees, inventory, and property. Economic nexus can arise from sales alone, and many states use bright-line thresholds. Remote employees can create nexus without the employer planning for it.
P.L. 86-272
This 1959 federal law bars a state from imposing a net income tax on a seller of tangible personal property if its in-state activity is limited to soliciting orders, the orders are approved outside the state, and goods are shipped from outside the state.
It does not protect services, and it does not cover gross receipts taxes. Some states take the view that certain internet activity goes beyond solicitation.
Practical steps
Run a nexus study by listing sales, payroll, property, and activities by state. Remember that sales tax and income tax nexus are separate questions. If past years are a concern, a voluntary disclosure agreement may limit exposure.
Key takeaways
- Nexus can come from presence or from sales.
- P.L. 86-272 only protects sellers of goods.
- Remote employees can create nexus.
For general education only, not tax advice. Tax law changes often, so confirm current rules and amounts with primary sources.