Sales Tax Slice: A Preview of Service Providers’ Nexus-Creating Activities from Bloomberg BNA’s Annual 50-State Survey


When do services create nexus? Each year Bloomberg BNA asks state revenue officials to clarify their states’ approaches to the gray areas of state tax law and publishes the answers in its Survey of State Tax Departments. This year BBNA asked several new questions about sales tax nexus for taxable services. The survey will be published on April 25, and the tallied results suggest states take different approaches.

Services in most states are generally not subject to sales tax unless they are specifically enumerated as taxable by statute.  For instance, some states that generally exclude services from tax impose sales tax on certain activities such as information services or repair and installations.

States tend to view situations where tangible personal property is either delivered by employees or stored with a third party as those that are more likely to create nexus, according to this year’s survey responses. For example, 35 states responded that nexus is created when an out-of-state corporation has employees that regularly (e.g., 12 or more times per year) enter the state to deliver to in-state customers tangible personal property that is incidental to the performance of services.  Slightly fewer states, but still nearly all of them, also said that nexus would be created when an out-of-state corporation:

  • has employees occasionally (e.g., less than 12 times per year) enter the state to deliver tangible personal property that is incidental to the performance of a taxable service, or
  • stores tangible personal property with a third party in the state.

An area that is less settled among the states is when nexus is created based on taxable services, regardless of whether tangible personal property incidental to the performance of the service is physically transferred.  Ten states said they would find nexus for an out-of-state corporation that provides a taxable service to an in-state customer in which:

  • no part of the service, including tangible personal property that is incidental to the performance of the taxable service, is physically transferred to the in-state customer, or
  • tangible personal property that is incidental to the performance of the service is physically transferred to the in-state customer.

Finally, states’ survey responses show that they are more likely to find nexus in scenarios involving a “taxable service” than “repairs” (the survey question told states to assume the repair services are taxable). Only five states—Arizona, Iowa, Kentucky, Rhode Island and West Virginia—said they would find nexus when an out-of-state corporation repairs tangible personal property in another state and delivers it by common carrier to an in-state customer.

Continue the discussion on Bloomberg BNA’s State Tax group on LinkedIn: What substantial nexus standard should states use to impose tax on services?

For more information about this and other state tax issues, sign up for a free trial of the Bloomberg BNA Premier State Tax Library. 

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