Reciprocal Tax : Nexus

Reciprocal Tax:

A reciprocal agreement allows residents of one state to request exemption from tax withholding in another (reciprocal) state.

For example, New Jersey and Pennsylvania have a reciprocal agreement, also called reciprocity. This means that a New Jersey resident who works in Pennsylvania can ask their employer to stop withholding Pennsylvania taxes, saving them the trouble (and expense!) of having to file a PA return in addition to their NJ return.

The reverse would also be true; that is, a Pennsylvania resident who works in New Jersey can elect to have their employer stop withholding for New Jersey, which means they'd only have to file a state return for Pennsylvania.

TurboTax handles reciprocal states and will generate the correct state(s) based on your personal information and your W-2.

Ref: BSI Nexus Indicator

BSI - Nexus Indicator

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·         Added by Jaime Ishikawa, last edited by Jaime Ishikawa on Dec 14, 2011  (view change)

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Purpose

The document it was created to guide the user to how create and maintain the new parameter (NX) for BSI version 9.0.

Overview

Nexus Indicator is a new feature that enhances the Tax Factory tax calculation process. It allows for the proper reciprocal allocation of resident and non-resident wages and taxes   as regulated by the state-level taxing authorities supported within BSI Tax Factory, when an employee resides in one state and earns wages outside of their resident state.

Nexus Indicator

BSI Tax Factory 9.0 is not expected to calculate as BSI Tax Factory 8.0 due to the Nexus rule. In Tax Factory 9.0, Nexus is turned off where as in Tax Factory 8.0 it was turned on for some states. As default the BSI 9.0 uses the primary reciprocal method. To turn Nexus on in BSI Tax Factory 9.0 you will need to pass the Nexus parameter via the API or set up the authorities in the Custom Nexus Tool in Tax Factory => Modeling.

To pass the parameter you must activate the Nexus indicator as the SAP Note 1500595 explains:

"Tax Factory will allow users to select a secondary reciprocal method for any applicable resident/ non-resident authority pairing. Therefore, employers who wish to use the secondary reciprocal method must create a record in view V_T5UTRC, indicating the work and resident authority pairing, and should explicitly choose the Secondary (Nexus) - Business tax registration filed option in the Nexus Indicator field. This will allow Tax Factory to automatically calculate withholding taxes based on the secondary regulatory withholding requirements for each resident/ non-resident authority pairing."_

 Configuring Nexus Parameter

You must create an entry in the table V_T5UTRC for the work tax authority and one for residence tax authority as can see it below:

          

In the field “Nexus Indicator” have 2 options:

0. Primary (Default) - Business tax registration not filed.

1. Secondary (Nexus) - Business tax registration

To activate the Nexus indicator the option 2 should be selected, this will pass to BSI Script an entry the ‘NXIndicator Parameter’ (NX:1). So this way the nexus indicator will be activated passing the reciprocity rule to BSI script.

Example:

Tax Factory 9.0 follows the Nexus Reciprocity rules. With Nexus turned off, CA will not calculate but AZ will. With Nexus turned on, CA will calculate and AZ will not calculate.

Note: This enhancement has not been implemented on the Local level. For Localities you will need to create a Reciprocal Overrides, to do that you will need to go to Reciprocal Override Tool.