For many businesses headquartered in a single state, such as Washington, California, or New York, operations often extend far beyond their home base. Whether serving clients in other states, employing a remote workforce, or selling products nationwide, these interstate activities can trigger significant tax responsibilities in those other states. Overlooking these obligations can lead to costly penalties, back taxes, and interest. Understanding the concept of “nexus” is the first step to ensuring compliance.

What is Nexus?

“Nexus” is a legal term that describes the connection a business has with a state that is significant enough to require the business to comply with that state’s tax laws. Historically, nexus was primarily established by a physical presence, such as an office, warehouse, or employee in a state. However, the modern business landscape, driven by e-commerce and remote work, has led to a much broader definition.

Today, nexus is not just about physical location. It can also be created through economic activity, a concept solidified by the 2018 Supreme Court decision in South Dakota v. Wayfair, Inc. This ruling affirmed that states can require businesses to collect and remit sales tax even if they have no physical presence in the state, provided they meet certain economic thresholds.

When Do Tax Obligations Arise in Other States?

A variety of business activities can establish nexus in a state where your company is not headquartered. The likelihood and nature of the tax obligation can vary based on the specific activity.

What Types of Taxes are Involved?

Once nexus is established, your business may be responsible for several types of state taxes:

State Income Tax: If your business generates revenue from customers in another state, you may be required to file a state income tax return and pay taxes on the portion of your income earned there. For instance, a Washington-based marketing firm that provides consulting services to a client in California may need to file a California income tax return if it meets the state’s nexus criteria.

Sales Tax: If you sell goods or taxable services to customers in another state where you have nexus, you are generally required to register for a sales tax permit, and then collect and remit sales tax on those transactions. For example, a business selling over $500,000 of products annually to Texas consumers online would be required to register and collect Texas sales tax.

Payroll Tax: When you hire an employee who lives and works in a different state, you must comply with that state’s payroll tax laws. This includes registering as an employer in that state, withholding state income tax from the employee’s wages, and paying state unemployment taxes. A Seattle company hiring a remote developer in Oregon, for example, must register with Oregon and manage withholdings accordingly.

A Practical Case Study

Consider an IT company headquartered in Washington. The company has a remote employee living in Arizona and provides software services to clients in both Arizona and Texas. Although the company has no physical office outside of Washington, it has unknowingly created tax obligations in multiple states:

Arizona: The presence of a remote employee establishes nexus. The company is now required to file for and pay Arizona payroll taxes. Furthermore, revenue generated from Arizona-based clients may be subject to the state’s income tax, requiring the company to apportion its income.

Texas: By selling a significant volume of software services to Texas clients, the company has likely exceeded the state’s economic nexus threshold for sales tax. It must now register to collect and remit Texas sales tax.

This example illustrates how business activities, not just physical locations, are the determining factor for multi-state tax obligations.

How to Prepare and Stay Compliant

Navigating multi-state taxes requires a proactive approach:

1. Analyze Your Footprint: Regularly review your business activities, including the location of your customers, employees, and contractors, to identify potential nexus risks.
2. Track Revenue by State: Configure your accounting system to track sales on a state-by-state basis. This will help you monitor whether you are approaching economic nexus thresholds.
3. Conduct Due Diligence: Before hiring a remote employee or expanding into a new market, research the tax regulations of the relevant states to understand your potential obligations.
4. Leverage Automation: Utilize tax compliance software to automate the calculation, collection, and remittance of sales tax and to help manage payroll tax requirements across different states.

In an increasingly borderless economy, a business’s tax responsibilities are no longer confined to its headquarters’ location. Proactive management and a clear understanding of nexus are essential for sustainable growth and avoiding the financial and legal burdens of non-compliance. As your business expands, so too must your diligence in managing its tax obligations.

If your business operates across state lines—whether through remote employees, online sales, or physical presence—you’re likely subject to multistate tax filing requirements. As states become more aggressive in enforcing their tax laws, it’s crucial for business owners to understand their obligations to avoid penalties and interest.

What Triggers Tax Filing in Another State?

Each state has its own rules for determining whether your business has nexus, the legal term for a sufficient connection to require tax registration. Nexus can be established by:

• Having a physical office or store in the state
• Employing workers or contractors in the state
• Owning or leasing property (including inventory in a warehouse)
• Reaching a certain level of sales or transactions (economic nexus)

With the rise of e-commerce and remote work, many businesses unknowingly create nexus in multiple states.

Common Taxes That May Require Multistate Filing

Once nexus is established, your business may be required to register, collect, or file for several types of taxes:

1. State Income Tax

If your company earns income from business activities in a state, you may need to apportion income and file a return in that state—even if you’re based elsewhere. The rules vary depending on whether you’re a pass-through entity, C corporation, or sole proprietor.

2. Sales and Use Tax

After the landmark South Dakota v. Wayfair, Inc. decision, states can require out-of-state sellers to collect sales tax based on sales volume alone. If you sell tangible goods or taxable services online, you may have sales tax nexus in multiple states—even if you have no physical presence there.

3. Payroll Taxes

If you employ remote workers or contractors in another state, you’ll need to comply with local withholding, unemployment insurance, and other employer tax requirements for that jurisdiction.

4. Franchise and Gross Receipts Taxes

Some states impose taxes based on revenue or the mere right to do business in the state, regardless of profit. These include Washington’s Business & Occupation (B&O) Tax, Texas’s Franchise Tax, and Ohio’s Commercial Activity Tax.

How to Stay Compliant

Navigating multistate tax rules can be overwhelming, but a proactive approach can protect your business and support growth:

• Evaluate where your business has nexus—both physical and economic
• Register appropriately with each state’s tax authority
• Track sales thresholds for each state where you operate
• Maintain accurate records of income, payroll, and business activities by location
• Work with a tax professional to file the correct forms and apportion income properly

Let’s Simplify Multistate Compliance Together

At Alisa Na CPA, we help businesses of all sizes understand and meet their multistate tax obligations. Whether you’re expanding into a new market or unsure about your current filings, we’ll guide you through the process with clarity and peace of mind.

For physicians, nurses, therapists, and other healthcare professionals, each day demands sharp focus, accountability, and unwavering commitment. Caring for patients is more than a job—it’s a calling that involves constant judgment and responsibility.

Yet, while many in healthcare dedicate their lives to others’ well-being, their own financial health often takes a back seat. Too often, I’ve seen busy professionals delay planning or assume financial matters will sort themselves out later. Unfortunately, inaction can be costly.

Over the years, I’ve had the privilege of advising healthcare professionals across a variety of settings. One thing is clear: your financial decisions extend well beyond the exam room—and the sooner they’re addressed with the same precision as your clinical work, the better your outcomes will be.

Medicine Is Science. Finance Is Strategy.

The income structure of medical professionals differs significantly from that of the average salaried employee. Even hospital-based providers with fixed salaries may receive additional income from lectures, consulting, research participation, or stipends for academic involvement. Private practice owners face even more complexity—with revenue tied to clinical income, real estate holdings, equipment leases, partner agreements, and more.

What complicates matters further is how this income is taxed. It’s common for healthcare professionals to be automatically categorized as high-income earners and taxed accordingly, without consideration for the nuance of their financial structure.

Here’s what matters: Income should not be viewed simply in dollar terms—it must be evaluated in terms of structure.

For example, the way you structure your practice—whether as a sole proprietorship, S-Corporation, or PLLC—can significantly impact your tax liability and long-term wealth. Two physicians with identical incomes may face very different outcomes depending on how their finances are organized.

The difference isn’t just what you know. It’s how—and when—you apply that knowledge.

Common Financial Mistakes Among Healthcare Professionals

Despite high earning potential, many healthcare professionals face avoidable financial pitfalls. The three I see most often:

1. Lack of Expense Awareness

Busy schedules leave little time to track spending or review budgets. As a result, income may be high, but end-of-year cash flow is unclear, and financial decisions are made reactively.

2. No Asset Protection Planning

Professionals working in medicine face inherent legal risk. Yet many retain all assets in their personal name—without the protection of a trust, family LLC, or tailored asset-diversification plan.

3. Delayed Retirement Planning

It’s common to hear: “I’ll catch up later.” But with access to advanced retirement vehicles like Defined Benefit Plans and Cash Balance Plans, healthcare professionals have powerful options—if started early. Waiting often means missed tax advantages and diminished compounding potential.

A CPA’s Role: Beyond Tax Filing

Many view CPAs as simply tax preparers. But in my practice, I approach accounting as much more:
a strategic partner helping professionals design the financial architecture of their lives.

Whether you’re preparing to launch a clinic, reviewing a lease agreement, evaluating partner contracts, or planning for retirement, the decisions you make today can have lasting implications. My goal is to guide you through those decisions with clarity, insight, and long-term vision.

As a healthcare professional, you are trained to approach every diagnosis with precision, thoroughness, and care. I believe your finances deserve the same.

Let’s design a structure that reflects not just your current needs—but your future goals, your family, and your legacy.