Sales Tax Nexus Study for US Businesses: Compare Scope

Set the required scope before requesting bids

Before accepting registration or remediation advice, require a historical sales tax nexus study to identify whether and when each legal entity established nexus in each jurisdiction under the rules for the relevant period.[3][10]

• Required scope: Entities, historical periods, states and relevant local jurisdictions, including operations in places where the business did not register.
• Required evidence: Sales by entity, period, state and channel; personnel, property and inventory locations; affiliate and referral activity; and prior filings or state contacts.
• Required output: A state-by-state findings matrix and written memorandum tracing each conclusion to evidence, assumptions, exceptions and governing authority.
• Separately authorized work: Registration, voluntary disclosure, historical returns and ongoing compliance.

The request for proposal should specify:

• Entities: Every current and former legal entity, acquired business and predecessor, supported by an ownership chart and transaction history.
• Periods and jurisdictions: Start and end dates for every state and relevant local jurisdiction under review.
• Activities: Sales channels and material operational changes, including acquisitions, reorganizations, employee moves, new facilities and inventory placements. Leyton identifies physical locations, employees, inventory, sales channels and revenue by state as study inputs.[9]
• Compliance history: Prior registrations, returns, notices, audits and voluntary-disclosure activity. Utah and South Carolina identify operational history, earlier state contact and unfiled periods as relevant to remediation review.[7][8]

Require the bidder to explain every excluded entity, jurisdiction or period and classify the reason as missing data, materiality, contractual scope or a tax conclusion. Entity treatment can differ by state: New Jersey defines a person broadly, while Arizona and Utah apply distinct affiliation or related-party rules.[4][6][7] No cited authority or provider page establishes a universal entity list, historical period or mandatory report format.[1][9][10]

Assemble evidence by channel and physical activity

Provide revenue by legal entity, state, historical period and sales channel rather than one company-wide export. Separate direct, marketplace and other channel sales where state treatment differs. Arizona, for example, excludes marketplace-facilitated sales from a remote seller’s threshold while requiring the seller to report its direct Arizona sales.[6]

• Physical operations: Document owned, leased or rented property; employee locations; sales and service visits; trade-show attendance; deliveries; temporary presence; and inventory locations, including third-party storage.[1][9][10]
• Relationship-based activity: Capture affiliates, representatives, compensated referrals and click-through arrangements separately.[1][9][10]
• Compliance history: Include earlier returns and registrations, collected-but-unremitted tax, audit correspondence and previous state or Multistate Tax Commission contacts. Utah’s voluntary-disclosure process requests operational history, property and personnel details, solicitation methods, estimated liabilities, collected tax and earlier Utah or MTC contact.[7]

Require a missing-data log identifying each unavailable record, its owner, the affected period, substitute evidence and the resulting limitation.

Require a traceable historical state matrix

The findings matrix should let reviewers trace each conclusion to its facts and authority. Treat this as a procurement requirement, not a mandated professional standard; the cited MTC, Leyton and Avalara materials establish no universal matrix format.[1][9][10]

• Row definition: Use a separate row for each relevant combination of legal entity, jurisdiction, historical period, sales channel and business activity.
• Basis: Record the nexus category, triggering activity, evidence reference, missing evidence, assumption, exception, governing authority, authority date and inferred nexus date.
• Finding: Record registration status, conclusion, potential filing obligation, exposure-calculation method, confidence level and unresolved questions.
• Next step: Identify required verification and possible remediation without treating the recommendation as authorization to register, file or contact a state.

Multiple rows for one state may be necessary. Washington’s history identifies physical-presence rules for 2009 and earlier, service-related economic nexus beginning in June 2010, wholesaling and click-through changes beginning in September 2015, Wayfair-related changes in October 2018, and further changes in March and July 2019.[3] Its current standard applies when a business has physical presence in Washington, has more than $100,000 in combined gross receipts sourced or attributed to the state, or is organized or commercially domiciled there, in the current or prior year.[3]

Channel and exception fields keep unlike sales apart. Arizona treats facilitated and direct sales differently for its remote-seller threshold, and that threshold itself stepped down from $200,000 for 2019 to $150,000 for 2020 and $100,000 for 2021 and later, so each year needs its own row.[6] New Jersey’s August 13, 2015 bulletin described a $10,000 click-through standard measured over earlier quarterly periods, permitted rebuttal of the solicitation presumption and warned that later developments could affect its accuracy.[4]

The narrative memorandum should cite its corresponding matrix rows and evidence references. Leyton describes its memorandum as covering methodology, findings, risks and recommendations.[9]

Compare Leyton USA and Avalara

Leyton USA

• Historical analysis: Leyton describes state-by-state economic- and physical-nexus analysis using locations, employees, inventory, sales channels and revenue by state.[9]
• Written deliverable: Its comprehensive nexus memorandum covers methodology, findings, identified risks and recommended compliance or risk-mitigation steps.[9]
• Follow-on implementation: Leyton offers registration assistance, filing strategies and ongoing compliance support after the study.[9]

Avalara

• Historical analysis: Avalara offers a free initial nexus risk assessment and Professional Services for more detailed analysis, including identifying where and when nexus arose.[10]
• Written deliverable: The cited page is informational rather than legal or tax advice and does not state the format or contents of a Professional Services report.[10]
• Follow-on implementation: Avalara describes compliance offerings after the assessment but does not detail their scope on the cited page.[10]

Leyton reports support in all 50 states and describes its service for businesses expanding across states or changing operations and sales channels.[9] Avalara describes its service for businesses operating beyond their home state, potentially unregistered where obligations exist, or seeking to determine where and when nexus arose before selecting a response.[10]

Leyton offers a free consultation but does not describe the nexus study itself as free.[9] Avalara describes only its initial risk assessment as free.[10]

Separate analysis from registration and remediation

Completion of the nexus study should trigger an internal decision, not automatic registration or filing. Avalara describes a study as the first step and distinguishes it from a voluntary disclosure agreement, which it characterizes as a binding agreement intended to encourage compliance by limiting the look-back period.[10] Avalara also warns that registering before addressing historical liability may lead to fines and penalties while back taxes may remain due.[10]

Require separate scope, pricing and written authorization for:

• State registration
• Voluntary-disclosure applications or negotiations
• Historical return preparation and back-filing
• Prospective filing and ongoing compliance

State procedures should determine the sequence. South Carolina advises an uncertain business to submit its Nexus Questionnaire before completing the Business Tax Application. A business with nexus during an unfiled period may request consideration for the state’s Voluntary Disclosure Program.[8] Remediation recommendations should therefore remain conditional on state-specific procedures and approval rather than assuming acceptance, a particular look-back period or penalty relief.

Challenge stale guidance and unsupported assumptions

Require each conclusion to identify its primary authority, effective period, retrieval date and any amendment or superseding authority. New Jersey’s TB-78(R) says it was accurate only as of August 13, 2015, and warns that later legal or interpretive developments may affect it.[4] Avalara describes the June 21, 2018 Wayfair decision as overturning the physical-presence rule and cautions that sales tax rules change frequently.[10]

• Separate channels: Test direct, marketplace, wholesale, service and referral sales independently. Arizona treats marketplace-facilitated and direct sales differently.[6] Washington’s history shows changes affecting physical presence, services, wholesaling, click-through activity, transaction standards and notice reporting across different periods.[3]
• Stress-test assumptions: Label each input as a documented fact or assumption, then show whether changing the assumption changes the conclusion.
• Verify state rules: Confirm thresholds, sourcing, taxability, local rules, filing frequency, rates, penalties, interest and remediation terms with the relevant state authority for the period under review. The Washington, Arizona and Utah materials are jurisdiction-specific examples.[3][6][7] The New Jersey and South Carolina materials likewise do not provide a complete nationwide historical matrix.[4][8]

What to confirm with each provider

Avalara states that many of its products use volume-based pricing; the Leyton and Avalara pages do not publish full-study pricing, turnaround time, deliverable limits, contract term, cancellation rights, confidentiality or security terms, reliance protections, professional-liability coverage, updating responsibilities, or independently tested outcome rates.[9][10]

• Commercial terms: Request fixed or estimated fees, pricing assumptions, out-of-scope rates, milestones, client-data deadlines and revision rounds.
• Deliverables: Review a redacted matrix and memorandum. Test whether each conclusion traces from the entity and period through evidence, authority, assumptions and exceptions.
• Governance: Identify the preparers and reviewers, deliverable formats, security controls, data-retention rules, reliance language and professional-liability coverage.
• Privilege: Have counsel assess whether and how it should engage the provider.
• Separation: Require separate pricing and affirmative authorization for registration, voluntary disclosure, back-filing and ongoing compliance.[9][10]
• Exit terms: Confirm cancellation rights, termination fees, work-product ownership, transition assistance and responsibility for legal updates before implementation.

Base the award on the provider’s ability to deliver traceable historical findings and a usable written record, supported by a negotiated scope and engagement agreement.

References

1. Nexus School – MTC (mtc.gov)
3. Out of state businesses reporting thresholds and nexus | Washington Department of Revenue (wa.gov, 2020)
4. Nexus for Sales and Use Tax TB-78(R) – Issued August 13, 2015 | New Jersey Division of Taxation (nj.gov)
6. Economic Threshold | Arizona Department of Revenue (azdor.gov)
7. Pub 37 | Utah State Tax Commission (utah.gov)
8. Nexus | SCDOR – South Carolina (sc.gov)
9. Manage Your Sales Tax Exposure with a Nexus Study | Leyton USA (leyton.com)
10. What is a nexus study and why consider one – Avalara (avalara.com)