The Supreme Court, on at least two occasions, has construed this ?substantial nexus? requirement when it comes to collecting taxes, requiring that the out-of-state (foreign) business must have ?more than de minimus? physical presence in the taxing state. The key here being ?physical presence.? Many recent state level cases have used the physical presence standard when imposing taxes on foreign companies.

Previous Supreme Court precedents held that taxpayers acquired a substantial nexus with another state through continuous and systematic contacts with the state. Recently, states have been seeking to expand their right to tax foreign companies which have only an economic presence in the state. At this time though, the physical presence standard is holding and the one most companies should follow.

PHYSICAL PRESENCE?
So, ?what exactly is physical presence?? you might ask. This is a large point of contention as it is hard to find clear nationwide standards. Many states have created their own standards for establishing physical presence and therefore nexus allowing it to, in clear conscience, tax a foreign company. These standards, when defined, vary greatly in each state. For instance, if you are a trucker who drives through Massachusetts, substantial nexus occurs if you make more than twelve pickups, deliveries or trips through Massachusetts. This standard does not exist in any other state.

Unfortunately most state are more confusing as they do not clearly define when a foreign company has established physical presence within that state.

ANY BLACK & WHITE STANDARD?
So, when it is not clearly defined, how does a company determine if it has physical presence in a particular state? Again, there is no standard that applies absolutely to all states especially those states don?t have clear objective standards. However, based on the norms of most states, you can be pretty sure that you have established physical presence and therefore substantial nexus if you:
1. Lease or own a building that you use as office, retail, or industrial space for your business and/or

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