A June 2022 ruling by an Arkansas Administrative Law Judge sustained a tax assessment by the Department of Finance and Administration against a company deemed to have “sufficient nexus” within the state.
The judge pointed to the fact that the company’s signed statement from its controller during an audit stated that it had employees, agents, and representatives in the state. Since the nexus questionnaire was completed, the CFO of the same company informed the Department that those statements were incorrect with no explanation as to how the Controller would have been so mistaken or supporting evidence that it was indeed incorrect. While the preference was that the Department of Finance and Administration should simply ignore those assertions as incorrect, other questionnaire statements made a sufficient imposition for tax even before the Wayfair case of 2019.
The judge also noted that a review by the Office of Hearings and Appeals determined that the company made sales of tangible personal property into Arkansas that exceeded the nexus threshold.
In addition to sustaining the assessment, the judge ruled that interest must also be collected.
This administrative decision highlights the importance of accurately completing nexus questionnaires provided to state tax departments. When preparing such questionnaires or communications to be provided to state taxing authorities, it is imperative that the data provided is reviewed for accuracy before it is handed over to the state.
Businesses should have a review process in place for completing forms such as nexus questionnaires or other similar information requests sent by taxing authorities. Ensure that support is provided and reviewed within your company to ensure that the information provided is accurate and easily supported if challenged. When in doubt or unable to conduct a review of such documents, seek assistance from tax professionals.
This can also apply to registration within new states where you conduct business. Take care to answer each question accurately. A registration cannot be withdrawn once it is submitted. It can be a lengthy and complex process to amend any incorrect information. A common pitfall is misunderstanding questions on a registration pertaining exclusively to sales data within the state you are registering versus company-wide sales data.
(Arkansas Department of Finance and Administration, Office of Hearings and Appeals, Docket No. 22-469, June 2, 2022)