Nexus In A Nutshell: Financial Institution Edition

The state taxation of financial institutions is a constantly evolving and increasingly complicated topic. Long gone are the days of only having to file and pay tax in the states in which a bank has a branch. States are struggling to get revenue and all states want their piece of the tax pie. This has been evidenced by the increasing numbers of states which have implemented "economic nexus" rules. This article is meant to broadly cover what nexus is, how nexus can be created, and what the implications of nexus would be for a financial institution.

What does nexus mean?

Nexus is a term that refers to the "minimum connection" required for a state to subject a taxpayer to its income and/or sales tax filing requirements. (This article will focus on income tax nexus.) Traditionally this meant having a physical connection to a state - having a branch, payroll, or other physical property in a state. Increasingly some states have been expanding this physical presence test