Law Firms: Economic Nexus May Be Heading Your Way

Perhaps your partners and associates never set foot in an economic nexus state, a state in which your firm is deriving income, so economic nexus may seem like a minor tax concern. But now it's time to check the horizon ' economic nexus statutes are sweeping across the nation. Connecticut, New Jersey, and Massachusetts already have established them, along with more than 30 other states. These statutes throw physical presence in a state as the basis for economic nexus right out the window. Instead, they generally look at whether you're getting income from the state or have a substantial economic presence there by “directing business activities” toward the state. And the law remains nebulous about what exactly directing business activities means. The consequence for law firms is that your firm may be required to file a tax return in a state which no firm member or employee has even been in.