United States

Is your sales force creating nexus around the country?


A recent Washington Department of Revenue Determination should serve as a reminder to businesses with traveling sales employees that the physical presence nexus standard for sales and use tax purposes is alive and well despite recent criticism and calls for reform.

The Determination involved an out-of-state manufacturer with customers in Washington, but no payroll, facilities or other property in the state. The manufacturer maintained an in-state independent representative and had an out-of-state employee visit Washington customers several times a year for one or two days each visit. The Determination concluded that both the independent representative and out-of-state employee, on their own merits through accepting sales and procuring licensing agreements, were establishing or maintaining a market in Washington for the manufacturer’s business. Therefore, nexus was established for the manufacturer, creating a sales tax collection and filing obligation in Washington.

Businesses should remember that there is well-established U.S. Supreme Court case law finding that physical presence for sales and use tax purposes only need be demonstrably more than the slightest presence – a single sales trip may be sufficient. However, some states have provided minimum presence thresholds for out-of-state sales people, such as requiring two days of presence in the state before nexus is established. Other exemptions may exist for employees where the presence in a state is limited to a convention, conference, or trade show, but those exemptions vary greatly among the states.

Many businesses engage in the following activities, often on an infrequent basis, which typically create nexus in a state under the physical presence nexus standard:

  • Employees or representatives soliciting sales;
  • Employees providing warranty service or other assistance to customers;
  • In-state management of customer relationships; or
  • Making deliveries of property other than through the U.S. Postal Service or other common carrier, i.e., using your own trucks to complete a delivery.

When considering your sales and use tax nexus profile, it is absolutely imperative to take stock of the travel of your sales force or independent representatives in order to understand your nexus exposure.

Mo Bell-Jacobs


Mo examines state and local tax issues and the impact of legislation on middle market companies. Contact him at mo.bell-jacobs@rsmus.com.

Areas of focus: State and Local TaxWashington National Tax