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Physical Presence Nexus vs. Economic Nexus

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What's the difference between physical presence nexus and economic nexus?

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Solution Summary

The solution discuses the difference between physical presence nexus and economic nexus. Supplemented with two highly informative articles on debating these concepts.

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Interesting questions! Let's take a closer look through definition, discussion and examples of related court cases.

RESPONSE:

1. What's the difference between physical presence nexus and economic nexus?

The main difference between the two concepts seems to be that physical presence means asserting taxes (sales and use taxes) through a company's physical presence of tangible or intangible property in the state; whereas economic nexus means asserting income tax nexus through a company's use of and income from intangibles license in the state, but no physical presence.

However, problems of definitions still abound in the courts (see article attached as: substantial nexus.doc, which discuses the problem of definition). In fact, "the court's lack of clarity regarding application of the physical presence standard to income taxes opened the door for South Carolina to introduce economic nexus in the 1993 Geoffrey corporate income tax case. Until this case, corporate taxpayers generally assumed physical presence was required for a state to impose tax. In Geoffrey, however, the South Carolina Tax Commission asserted income tax nexus through a company's use of and income from ...

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