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Navigating the Nexus Maze: Key Questions for OTR Carriers To Avoid Tax Pitfalls

June 7, 2024

Nothing conjures up stress-induced heartburn for trucking companies quite like the word “nexus.”  A vague term that, when triggered, could result in hundreds of thousands of dollars of state and local tax liabilities … a real-life Pandora’s box.

In the realm of state and local taxes, nexus is a comprehensive term used to define whether a company’s activity or connection in a particular jurisdiction is sufficient to merit taxation. Everyone wants a “piece of the pie,” and over-the-road trucking companies are easy targets due to the nature of their interstate travel and, often, vast geographic footprint. There are situations where a full-scale nexus study is fitting (i.e., in years where your business operations expand into several new states), but for those that want to dip their toe in the water versus diving right into the deep end, below are questions to consider that can help you determine if further analysis is needed:

  1. In which states does my trucking company have a physical presence (terminals, warehouses, maintenance facilities, etc.)?
  2. In which states am I paying payroll taxes?
  3. In which states is IFTA mileage the heaviest?
  4. In what states is my company registered to do business with the Secretary of State?
  5. In which states do I have rent or lease expense for real and/or tangible personal property?

Once you’ve considered these initial five questions and generated a comprehensive list of states in which your company is actively engaging in business operations, further ask yourself the following:

  1. Of the states identified in questions 1-5, in how many of them are we currently not filing a business tax return?
  2. Of each of those states in which the company is not filing a tax return, ask yourself these questions:
    1. What is the filing requirement and/or nexus threshold?
    2. How does the state determine the amount of income subject to tax?
    3. What is my potential tax liability?
    4. Is there a voluntary disclosure program available?
    5. Have I received a nexus questionnaire?

If your blood pressure is slightly elevated after applying these questions to your company’s fact pattern, consider reaching out to your KSM advisor to continue the conversation or complete this form.

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