In this day of tight budgets and the ability to do business electronically across state lines, states are looking more closely at how additional revenue can be generated through interstate commerce. But under the Constitution’s commerce clause, states cannot place an undue burden on the ability to do business across state lines. One type of undue burden would be taxing a business or individual who does not have some sufficient connection — or “nexus” — to that state.
The definition of nexus raises some interesting questions. Does a connection or link that creates a nexus mean that a firm needs to be physically present within the state, or does it mean that the firm must merely generate significant revenue from transactions within the state? The federal courts have not yet definitively decided that issue. As a result, many states have developed different methods of defining nexus and, in recent years, have begun to broaden that definition so they can increase their ability to tax businesses or individuals from other states.
