A construction company was unsatisfied with the service it was receiving from a downtown Portland firm, and even more unsatisfied with the fees they were paying for that poor service. Frustrated, they came to us for help.
They needed tax returns and reviewed financial statements in order to meet financing covenants with their bank. Soon after our staff started working on their books, we noticed that the company had a substantial amount of revenue coming from outside the state of Maine. This raised a red flag for us. We were concerned with whether or not the company had nexus in other states.
When a company has nexus with a state, it means its activities in the state are substantial enough to create a tax filing obligation. These obligations can include sales and use tax, income tax, franchise tax, or other business taxes. The problem is that no single definition for nexus applies to all states. In some states a physical presence is required (for example, owning property, leasing an office, employing people, etc.), but in other states this is not required. Therefore, a good tax accountant must review and understand the nature of your business operations and the statutes and rulings in each state in which you are doing business in order to really help you remain in compliance and avoid penalties.