A new study from sales tax software vendor Sabrix found that 95 percent of the companies it surveyed underestimated their sales tax liability and nexus footprint across state lines.
Nexus determines which business activities create sales tax liability in a state. Many states are getting more aggressive about auditing companies that do business across state lines and billing them accordingly as they search high and low for revenue sources to balance their budgets.
The Sabrix study also found that 85 percent of participating companies underestimated the number of states they needed to register in by more than 50 percent. Midsized companies with customers all over the country were most likely to underestimate and carried significantly more risk of audit exposure, while smaller companies who usually do business in a few states also underestimate, but have lower non-compliance risk.
Sabrix conducted the study in the third quarter with companies ranging in size from $3 million to $170 million in revenue and across a wide range of industries.
According to Sabrix, companies typically overlook issues such as independent contractors, services and trade shows. In most states, all it takes to establish nexus is an agent acting on behalf of the company. Performing services in a state whether a single service in a year or 500 can create nexus. In addition, according to Sabrix, spending even a single day at a trade show can create nexus even if the company does not sell anything and the visit is strictly informational.
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