Multistate Taxation
Multistate taxation addresses how businesses operating in multiple states determine their tax obligations, including nexus, apportionment, and allocation of income.
Explanation
Nexus is the minimum connection a business must have with a state to be subject to its tax jurisdiction. Physical presence (office, employees, inventory) creates nexus, and after the Wayfair decision, economic nexus (exceeding sales thresholds) can also trigger nexus for sales tax. Income is divided among states using apportionment formulas — most states use a single sales factor or a three-factor formula (sales, payroll, property). UDITPA provides the model framework for uniform apportionment. Throwback and throwout rules address sales to states where the taxpayer lacks nexus.
Key Points
- •Nexus: physical presence or economic nexus (post-Wayfair)
- •Apportionment formulas allocate income among states (single sales factor most common)
- •South Dakota v. Wayfair established economic nexus for sales tax
Exam Tip
Know the Wayfair decision — it allows states to require sales tax collection based on economic activity (e.g., $100K sales or 200 transactions) without physical presence.
Frequently Asked Questions
Related Topics
State and Local Tax (SALT) Nexus
SALT nexus is the sufficient connection between a taxpayer and a state or local jurisdiction that gives the jurisdiction the right to impose tax obligations on the taxpayer.
Corporate Tax Planning
Corporate tax planning involves structuring business transactions and operations to minimize the overall tax burden while complying with tax laws and regulations.
Test your knowledge
Practice scenario-based questions on this topic with detailed explanations.