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Businesses that use trade shows to promote and sell their products would be well-advised to research the hosting state’s nexus rules if they hope to avoid long-term sales and use tax duties in that jurisdiction, tax practitioners told Bloomberg BNA.
But businesses should also be wary of ambiguities in state rules and a wide range of nexus-triggering standards across the country. “Nexus” is the level of in-state physical presence required before a vendor is subject to a state’s taxing authority.
Some states, such as Texas, administer aggressive policies that push businesses into sales tax nexus, or “significant presence,” territory after a single day of convention or trade show activities. States such as California offer a wide berth, holding vendors harmless for trade show activities continuing up to 15 days.
Washington enacted trade show nexus legislation last year, and Illinois is currently engaged in a trade show rulemaking project. But many states have articulated only vague standards in their regulations and guidance statements.
“It’s all over the board,” said Paul Bogdanski, a state and local tax director with Grant Thornton LLP and former general counsel for the Illinois Department of Revenue.
“Some states are very specific, such as Texas, where one visit gives you nexus for at least another year. Other states such as California are going to give you a set number of days where you can be at the trade show, and you can take orders at that trade show as long as you don’t sell over a specified dollar amount. So it is going to depend on the state and how they view the activity,” Bogdanski said.
Catherine A. Battin, a partner with McDermott Will & Emery, said she isn’t aware of state enforcement initiatives attempting to dragnet trade show vendors into tax collection. At the same time, queries about trade show attendance are frequent features of questionnaires circulated by state revenue departments and could trigger audits.
“A lot of times they will send these out as a fishing expedition,” Battin told Bloomberg BNA. “If you mark ‘yes’ to any of their 50 questions, they will hit you up.”
Scott Peterson, vice president of tax policy and government relations for the tax software provider Avalara Inc., said trade shows are a common feature of almost any business strategy to promote and sell products and services.
The events may differ, with some shows selling directly to consumers and businesses. Some events are designed to simply exhibit goods and services with the hope of securing sales contracts or client relationships at a future date. In many cases, the shows have nothing to do with the jurisdiction hosting the event, providing out-of-state attendees with opportunities to conduct business with other out-of-state attendees.
Peterson emphasized, however, that any of these scenarios could trigger nexus for businesses that otherwise have no facilities, employees, or affiliates in the state hosting the trade show. The mere act of sending a team of sales executives to a show in another state, he said, could establish sufficient physical presence for the purposes of tax collection duties on all remote sales into that state.
“The general rule is, yes, this is physical presence,” said Peterson, a former director of the South Dakota Sales Tax Division. “The rule is then followed by a bunch of caveats.”
Those caveats create a true patchwork of trade show nexus rules across the county. In many cases, the differences between the states are driven by internal policy tensions between the state’s revenue ambitions and constituencies for a thriving convention and trade show industry.
Peterson said it wasn’t uncommon a dozen years ago for state revenue agents to visit trade events and review lists of businesses attending. Most of those reviews have stopped.
“I still think there is a mindset in the DORs that if they push trade shows too hard, the state office of economic development will call the governor’s office and say ‘you gotta stop the DOR from harassing people at our trade shows, or we will never get another trade show,’” he said.
Trade show laws and regulations in several states include:
Battin said taxpayers thirsting for clarity will find very little case law to guide them. However, the most prominent precedent on the question sets a high bar for state revenue agencies hoping to prove an out-of-state taxpayer attending a trade show holds substantial nexus.
In Florida Department of Revenue v. Share International, Inc. , the Florida Supreme Court rejected the state revenue department’s determination that Texas-based Share International Inc. had substantial nexus with Florida based on its annual participation in a three-day convention. The U.S. Supreme Court denied review of the case in January 1997.
The central question before the Florida high court was whether Share, a mail-order vendor, held substantial nexus under the U.S. Supreme Court’s 1992 ruling in Quill Corp. v. North Dakota , which prohibits states from imposing sales and use tax collection obligations on vendors without an in-state physical presence. The state Supreme Court ultimately affirmed a lower court ruling that found Share’s trade show activities for approximately three days per year wasn’t sufficient to establish substantial nexus with Florida.
In this uneven landscape, Battin and Bogdanski suggested that businesses pay close attention to the tax rules in each trade show location. Highly cautious organizations with much to lose from a nexus—finding may choose to limit their sales team’s travel schedules.
“If you are a seller, the best course of action before setting up shop is to understand the lay of the land,” Bogdanski said. “So reach out to someone or do the research. Figure out how long you will be at the show, and figure out the consequences of making sales, accepting orders. And if it is nexus-creating, maybe you should limit your plans. If there is a five-day rule, maybe you just want to go for four. Knowledge is power, particularly when there are differences state to state.”
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