Understanding and complying with nexus laws is critical for construction companies operating across state lines and within certain municipalities.

Nexus determines where a company has state or local tax obligations, which can be triggered by various factors. Once triggered, a company must register its business, collect sales tax, and file tax returns.

One of the most common triggers of nexus is economic activity. In general, economic nexus can be triggered when a company’s sales and/or number of transactions exceed a particular threshold. Thresholds vary by state and are subject to change. For example, in New Jersey economic nexus is triggered when you reach $100,000 in sales or have 200 or more separate transactions. In Florida, it’s triggered after $100,000 in sales.

There are additional triggers like physical nexus, which may occur when a business has people (i.e., employees, subcontractors, agents, remote workers, and more) or property (i.e., a storage warehouse) in another state.

A company must obtain a business registration in any state where it has nexus, collect taxes on sales, and regularly file sales tax returns. Registration deadlines vary by state. For example, in New York, it’s 30 days after meeting the threshold. For Florida, it’s the first day of the next calendar year.

Timely compliance is crucial. If a company doesn’t register as a taxpayer by a state’s deadline after nexus is triggered, it can face back taxes for the period it operated in the state without remitting sales tax. The company might also be liable for penalties and interest. In some cases, the state could hold the company’s owners or officers personally responsible for unpaid taxes.

Here are a few of the more common questions we hear about nexus and their answers:

How do I know if my construction business triggered nexus in another state or municipality?

Laws differ by states and even certain local municipalities, so it’s important to review local laws or consult a tax professional. Be aware that activities like subcontracting, storing materials, or temporary work assignments might trigger nexus. Also, different types of taxes (sales, income, franchise) have different nexus standards.

What do I need to do and by when if my construction business triggers nexus in another state or municipality?

You’re required to obtain a business registration, collect appropriate taxes from customers, and regularly file tax returns in that state or municipality. Deadlines for registration vary.

Does nexus impact payroll taxes for construction contractors and subcontractors?

If contractors or subcontractors perform work or have employees in a state where they establish nexus, they may be required to withhold and pay payroll taxes in that state.

Do I need to account for nexus in my bidding process?

If you are bidding on an out-of-state project, you should understand how nexus may impact your budget and bottom line. You want to avoid getting into a situation where not accounting for local sales taxes results in unexpected liabilities that reduce profitability.

The preceding information provides highlights – the many ways your business may trigger nexus and the resulting obligations are complex and varied. RBT CPAs tax professionals are available to help you understand and navigate nexus, so instead of worrying about tax obligations and repercussions, you can focus on managing your business and driving success. To learn more, contact RBT CPAs today.

RBT CPAs never offshores work outside of the U.S., so you always know who is handling your financial information.