By:  Jennifer Stripling, Tax Manager

Jennifer is a tax manager, a member of the JMF Tax Department and in an integral part of the JMF State and Local Tax (SALT) group.  With over 11 years of experience, she assists clients with corporate, partnership, and individual income tax reporting as well as complex multi-state income and sales tax issues.


Nexus is the amount and degree of a taxpayer’s business activity that must be present in a state before the taxpayer is required to file a return and pay tax on income earned in the state. Individual states determine what degree of nexus triggers a tax return filing requirement and those rules can vary from state to state.

In recent years, many states have adopted a “bright-line” or factor presence nexus standard. This means companies with property, payroll or sales in a particular state above certain thresholds are presumed to have nexus in the state and are therefore required to file income tax returns and pay tax in that state.  This bright-line standard is following the lead of the Multistate Tax Commission (MTC) which adopted a model rule, Factor Presence Nexus Standard for Business Activity, in 2002. The MTC is an intergovernmental state tax agency working to administer tax laws that apply to multi-state and multinational enterprises. If adopted by a state, this standard establishes nexus for any taxpayer that exceeds any of the following thresholds:

  • $50,000 of property
  • $50,000 of payroll
  • $500,000 of sales; or
  • 25% of total property, total payroll, or total sales.

The ultimate focus of this factor presence standard is putting a dollar threshold on sales to determine nexus. If a company has property or payroll in a state above the thresholds established, that gives them nexus even if the business does not meet the traditional physical presence test. The following states have adopted the factor based nexus standard as of December 31, 2016: Alabama, California, Colorado, Connecticut, Michigan, New York, Ohio, Oklahoma and Tennessee.

This is significant for manufacturers who construct parts or equipment in one state and ship goods to customers in other states. The “bright line” test makes it possible for a company to have an income tax filing requirement in a state where it only has sales and no physical presence.

If you are unsure about whether you have nexus in another state, please reach out to our State and Local Tax (aka SALT) Group, headed by shareholder Kim Smith.