Another profound problem is the allocation of income among a number of jurisdictions. The sourcing and allocation of income on a worldwide basis as to Electronic Commerce is an extremely difficult issue that neither the applicable law nor the treaty regimes have begun to address. State tax considerations present much the same issues as federal tax considerations. Nexus is the threshold test that must be met before a state may tax income or transactions. Nexus is a Latin term and means a link or connection with the taxing state.
Nexus is different for income tax and sales and use tax purposes.
Current concepts used to establish nexus for taxation purposes do not fit in the Electronic Commerce era. Under current case law, some sort of physical presence is required for nexus for sales and use tax, but not for income tax. A state may have nexus to tax based on the presence of agents or representatives of the taxpayer in the jurisdiction. Presence of Intangibles . Recent cases suggest presence of intangibles may give rise to nexus.