Does your business have filing requirements in other states? Do other states want a share of your business’ profits?
In today’s challenging economic environment, states are looking for new revenue sources to help balance their budgets. Out-of-state businesses are increasingly being identified and targeted as potentially taxable entities.
Businesses should be aware of their potential responsibility for three types of state reporting:
- Sales & use tax
- Income and non-income based taxes, including gross receipts tax, franchise tax
- Registration and qualification with other state’s Secretary of State office to do business in a state
Ask yourself the following questions to see if you should take a closer look at your exposure to multi-state taxes:
- Is your business growing?
- Is the way you do business changing?
- Do you have sales people in another state?
- Do you use agents to represent your business in another state?
- Do you deliver your products to out of state customers in your own vehicles?
- Do you own assets in other states?
- Do you have employees who are telecommuting (working remotely from their home) in another state?
If you answered “yes” to any of the above questions, your business may have multi-state tax and reporting exposure.
Even if you answered “no” to all of these questions, you may have “economic nexus” in certain states. Some states, including New York and California, have gotten even more aggressive by adopting economic nexus. States with economic nexus assert that businesses with sales into their state that exceed a certain dollar threshold are liable for tax even if that business has no employees or property in that state. If you have any questions or concerns about filing in other states, please call us.
Also, please contact us anytime you receive a questionnaire or correspondence from an unfamiliar state department of revenue or other taxing authority. We say this from experience – do not reply to these questionnaires on your own.
While it’s best to file on a timely basis, if you discover that you have missed a filing requirement, the good news is the states make it easy to come into compliance with the law – if you contact them before they contact you. We have contacted many states to request a “voluntary disclosure” on behalf of clients. The states do not required us to disclose the name of the client until they agree to a voluntary disclosure. This generally allows a company to file tax returns for a limited number of years and pay the back-taxes and interest but no penalties.
Filing in other states is inconvenient and comes with a cost, but it is convenient and cheap when compared to dealing with this problem in an audit situation.
Let us know if you have questions about this topic. We’re happy to help!
Written by Joseph Trecarichi, CPA.