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.
