What You Need to Know About Doing Business across State Lines

What constitutes “doing business” across state lines?
If your business has operations in more than one state, you may be subject to income tax, employment tax and/or sales and use tax regulations in those states.  This is known as Nexus which can be created if your business has a physical presence, economic presence or factor presence in another state.  Each state has different filing requirements which can vary greatly.  To determine if your business has nexus in another state, you can begin by asking yourself some of the following questions:

• Do I have employees or agents with a physical presence in another state?  This could be due to their state of residence or their sales/service territory. 
• Do I have clients or customers outside of my state that I provide products or services to?
• Does my business have an out-of-state location?  Does my business own or rent land/property in another state?
• Does my business hold or store inventory in another state?

What do I need to do if I have nexus in another state?
More often than not, the answer is not resolved by performing just one simple task.  After you have determined you do in fact have nexus in another state, you can begin by registering your business with the various required state offices.  In addition to basic registration, you may also need to file and pay income taxes, collect and remit sales/use taxes, file and pay employment taxes, and in some states even more.  

What are the repercussions of not filing all the correct documentation?
If you fail to meet a state filing requirement, the states can assess you with back taxes, penalties and interest for the time you were required to file in that state.  However, these filing oversights can many times be discovered during your tax preparation or review.  Your CPA may notice that you have been doing business outside of your state, for example, by viewing a W-2 with another state address.  At this point, we can discuss the company’s status and you can begin to file all of the necessary paperwork.  Additionally, depending on how your business is structured, multistate taxation issues could affect all owners of the organization leading them to be liable for additional state filings on their individual tax return.

What resources are available to answer my questions? 
As stated above, each state has different laws and regulations. Most states have websites and information online, or you can also call the respective state’s department of revenue to ask questions.  However, it may be a time – and headache – saver to contact your accounting firm.  At Bergan Paulsen, we’ll be able to research and provide you with the answers specific to your situation.  We’ll also go a step further and assist you in filing all the necessary paperwork.  Please contact us with any questions.