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Factor Presence Nexus Standard

By December 5, 2022Sales Tax
Factor Presence Nexus Standard

Under factor-based nexus, or factor presence nexus, an out-of-state company has nexus if it has property, payroll, or sales that exceed certain thresholds during the tax period. The (MTC) adopted a factor presence nexus standard model statute. The model includes threshold amounts to use in determining if enough substantial nexus exists to subject a business to state income tax.

Factor presence nexus provides an easily ascertainable standard. Still, some states view factor presence standards as only an alternative method in figuring out nexus. Thus, states can still establish nexus even if the taxpayer does not meet the factor presence thresholds.

In an effort to promote uniformity among states and create a bright-line nexus test for business activity taxes, the Multistate Tax Commission (MTC) adopted a model statute, Factor Presence Nexus Standard for Business Activity Taxes, on October 17, 2002. The statute calls for nexus to be established if any of the following thresholds are exceeded during a tax period:

$50,000 of property;
$50,000 of payroll;
$500,000 of sales; or

25% of total property, total payroll, or total sales.” – The Tax Advisor

“Under the MTC’s model factor presence nexus standard, an out-of-state taxpayer doing business in a state will have substantial nexus with the state and be subject to the state’s franchise and income tax if any of the following thresholds are exceeded in the state during the tax period: (1) $50,000 or 25% of the total property; (2) $50,000 or 25% of the total payroll; or (3) $500,000 or 25% of the total sales.” – EY
Factor Presence Nexus Standard
Ansari Law Firm

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