With the onset of technology and ever expanding markets for even the small business owner, many businesses are operating in multiple states. That being the case, it is incumbent on management to know the states in which the business must pay taxes. The process of determining tax liability can be quite complex.
Generally, a business will owe taxes in states where the business has a “nexus” or connection. The nexus would start in the state where the business is incorporated. In addition, any state where the business has a headquarters or owns property, employs employees or other company representatives, may trigger tax liability. There may also be a standard whereby a state looks to the “business presence” or level of commercial activity that a business has, which can result in taxes being due.
Once you have identified all of the states where your company may have a nexus leading to tax liability, it is important to look at the various tax rates and compliance procedures of each state. Calculating the potential taxes and related compliance expenses is important since these expenditures can impact your pricing strategies and profits with respect to doing business in a particular state.
It certainly can be daunting to keep abreast of the various types of state taxes and compliance issues in each state where your business has a presence. The important thing is to determine the states where your business has a nexus, and then focus on the particulars of those specific states’ tax rules and compliance measures.