Does Participation at a Trade Show (Post-COVID) Create Sales Tax Nexus?
Hopefully, in a post-COVID world, in-person trade shows will give businesses an opportunity to market and display their goods and services, but participants must be aware of the potential sales tax nexus consequences.
By: Tina M. Chunn, CPA, State and Local Tax Senior Manager at Aprio
At Aprio, we field many questions from clients around state and local tax (SALT) concerns, including nexus matters. One aspect of nexus that clients often overlook is that having a temporary physical business presence can create nexus. Clients often will ask us the question, “How many days are enough?” State guidance typically doesn’t establish a clear, specific number, but the bar can be set fairly low. In addition, the type of activity a business is conducting in the state is an important factor in what is often a “facts and circumstances” analysis.
However, within the temporary physical presence analysis, there is one type of activity where states may provide more flexibility: trade shows. In the case of trade show nexus, states must balance the need to collect sales tax revenue versus the economic benefit provided by hosting a trade show. If a state imposed nexus on every out-of-state seller that attended a trade show, that state would not be a popular trade show destination — which also has a significant impact on its revenues.
If your business is planning to embark on a busy trade show schedule after the COVID-19 pandemic, then keep reading for some important examples and rules to consider regarding sales tax nexus.
An example: Washington state’s sales tax nexus exemption
In 2016, the state of Washington enacted a “trade show nexus exemption” statute. The statute provides that nexus will not be established “based solely on the attendance or participation of one or more representatives of a person at a single trade convention per year in Washington state.” Moreover, the trade show must not be marketed to the general public and the participant/exhibitor must not make any sales at the convention, including taking orders where receipt will occur at a later time in the state.
However, prior to that exemption, Washington was not as forgiving with respect to trade show nexus. On December 4, 2020, the Washington Department of Revenue Appeals Division issued a determination that a game developer created nexus based on its participation in an annual three-day trade show from 2010–2012.
The business (i.e., “the taxpayer”) is an out-of-state developer of a multiplayer, online video game that is free to play. The taxpayer generates revenues from virtual currency (the sale of points) that is purchased online and redeemed in micro-transactions through in-game content of virtual characters and other items to enhance game-play. The taxpayer did not have any of its employees’ property permanently located in the state, until the taxpayer hired an employee in November 2012, at which time it registered with the state.
In 2013, presumably as a result of registering, the state conducted an audit of the taxpayer for the period of January 1, 2010, to September 30, 2012. During the audit period, the taxpayer’s only contact with the state was that it participated in an annual three-day trade show at which it displayed its products by hosting game tournaments, giving away free products to trade show attendees and organizing discussion panels with its game developers. The trade show was attended by both industry insiders and the general public.
In its determination, the administrative law judge (ALJ) explained that the United States Supreme Court guidance makes clear that nexus can be created in a state if the taxpayer has a “physical presence in this state, which need only be demonstrably more than the slightest presence,” and that physical presence includes engaging in “activities in this state that are significantly associated with the person’s ability [to] establish or maintain a market for its products or services.”
Based on that guidance, the ALJ determined that the taxpayer’s participation at the trade show satisfied those standards, notwithstanding that the taxpayer maintained it did not make sales at the trade show.  The ALJ also rejected the taxpayer’s argument that the quantity of visits was insufficient to create nexus, noting that a prior determination concluded that two one-day sales visits to the state by employees over a four-year period created nexus.
Hopefully, in a post-COVID environment, trade shows will flourish and provide a valuable forum for businesses to market their goods and services. However, before attending a trade show, businesses should understand how participating may impact their state tax nexus.
Let Aprio do the heavy lifting. Our SALT team is experienced in performing nexus studies, and we can help ensure your business is compliant with state tax obligations so that it does not incur unexpected exposure or penalties. If we perform a nexus study that identifies potential state tax exposure for your business, we will work with you to resolve that exposure in the most favorable manner.
Do you have questions or are you interested in learning more about our nexus studies? Contact our Aprio team today, or stay tuned for more developments on this topic in future issues of our SALT Newsletter — we constantly monitor these and other important state tax topics so that you’re constantly prepared for what’s next.
This article was featured in the January 2021 SALT Newsletter.
 For example, in Arizona, guidance on the state’s website indicates that having an employee in the state for more than two days creates nexus. See here: https://azdor.gov/transaction-privilege-tax/nexus-program-tpt.
 Wash. Admin. Code 458-20-193(f).
 Washington Department of Revenue, Tax Dec. Det. No. 15-0036, 39 WTD 191, 12/04/2020.
 Quoting Tyler Pipe Industries, Inc. v. Dep’t of Revenue, 430 U.S. 274 (1977).
 There is a dispute whether the taxpayer had sales from the trade show in 2012. Department records reflect reported sales in 2012 under the temporary registration. However, the taxpayer denies these sales and claims they were made by a third party. The determination of substantial nexus for this ruling was made without consideration of these sales.
 Washington Department of Revenue, Tax Dec. Det. No. 08-0117, 27 WTD 239 (2008).