What does nexus refer to in the context of taxation?

In the context of taxation, nexus refers to the connection between a taxpayer and a taxing jurisdiction. This relationship is crucial because it determines whether a state or locality has the authority to impose tax obligations on an individual or business. For instance, if a company has a physical presence, such as an office or employees in a particular state, that establishes nexus, making the company liable for that state's taxes.

Understanding nexus is essential for both taxpayers and tax authorities, as it influences tax compliance requirements and potential liabilities. A strong nexus can lead to substantial tax obligations, including income tax, sales tax, or property tax, while the absence of nexus can relieve a taxpayer from such responsibilities. This concept is particularly relevant for businesses operating across state lines, as varying states have different laws regarding what constitutes nexus.