Evolution of Construction State Nexus
The picture of today’s construction industry is that there are a lot of service, internet, and web-based industries. Meanwhile, state nexus
laws are trying to catch up, but they are not quite there yet. In the meantime, this lag has created a lot of grey area
and construction state nexus exposure.
Making Your Way Out of the Dark Room: Typical Construction State Nexus Issues
Where are your operations? Are your project managers traveling out of state? Are you bidding jobs that are out of state? Do you have any employees that work from home or are based out of another state? Any one or all of these situations may cause problems with state nexus. The common response from a contractor is, “We haven’t been caught yet.” We find that many are often skeptical that the state is going to audit them so they are comfortable with the audit risk. In our experience, however, we are seeing more states stepping-up audits and notices. States are being more aggressive and particular in who they audit, and they are using technology to determine who is filing one or two tax types but not all tax types. Through this new technology they are starting to cross reference tax filings.
Snapshot of Construction State Nexus Consequences
If your company is audited and the state finds any inconsistencies, then the repercussions can be very costly. If you have never filed a tax return they can go back to the beginning of time and assess back taxes. Another issue that may arise is during the sale of your business. If you have not been filing taxes appropriately, this situation may be a liability found during due diligence that can hinder the purchase of your company. Once the issue is identified, there are steps and processes that need to be put into place to ensure that you remain compliant on a consistent basis moving forward.
Do you feel like your construction company may be exposed to some of these same issues? Then call CRI’s construction CPA team for assistance assessing and improving the current picture of your state nexus liabilities.