Nexus:
Nexus is the minimal presence within a state that allows a state authority to tax the company. Creating nexus in various states can produce increased administrative costs; however, nexus can also allow for lower tax expenses. California has been ranked in the ten worst states for businesses by the Tax Foundation. Virginia was number six for their corporate tax rank.
California states that if tangible personal property is shipped from an inventory in California to a state that is protected from imposing tax (one reason could be protection by the P.L. 8-272) (R&TC § 25135) it should be thrown back to California and taxed by California (Cal. Code Regs., tit. 18 section 25106.5 through 25106.5-11).

Creating nexus will result in the avoidance of the throwback to California.

Apportionment Factors:
The calculations were made based on the states formula provided by the state for the apportionment purposes. Such as Florida Rule 12C-1.015; Illinois, 86 III. Adm. Code 100; Maryland Reg 03.04.03.08; Sec 58.1-414 Virginia code; TTC 171.1055 Texas code; and Rule R865-6F-8 Utah.

Strategies:
Currently a majority of Cougar’s income is being apportioned to California because Cougar does not have nexus in other states. We can create strategies that will move the apportioned income away from California and into more favorable states including Virginia. We calculated the approximate amount of tax savings following the implementation of each of our suggested strategies using the same apportionable income calculated by the company that was made available to us by the company. We propose the following changes and show how this strategies can save hundreds of thousand dollars for the company in the tables attached.

1-Creating nexus in Nevada that doesn’t impose tax on corporate income is crucial so avoid throwback to the state that originates the sales. A few options for creating nexus could be empowering the sales force to provide services, approving orders, or maintain an office or inventory in the state.

Either 2 or 3:

2- For the amount of sales needed in the state of California, Cougar can keep the inventory and store the rest of the inventory in a warehouse in Virginia. A five-thousand square feet inventory condo costs $500,000 or leased for $ 50,000 a year. Table 1 shows our calculations for income tax liability and the savings as a result of this strategy based on the apportionment factors and throw out rule of Virginia and apportionment factor formula in California. We don’t have and prefer not to create nexus in other states.

3- Cougar’s Sales force empowerment to provide services such as assembling, testing, and repairing the circuits can ensure the customers of Cougar’s level of competence, knowledge and confidence in the product. As customers can rely on the company they may decide to employ Cougar as their sole supplier of circuits and sales increases based on the figures provided by the Vice President of Sales and Marketing. As a result Cougar will be more comparable to its competitors such as Expert Assembly Services, Eurocircuits USA, and CBR Circuits with revenue of $50 to $100 million.