Help! I accidentally became a multistate business!
Did you hire employees in a new state this year or have current employees move? If so, you might have multi-state nexus!
Wondering what nexus is and how it applies to you? - Here’s the TL:DR
Nexus is the term for when a state has the right to require you to file and pay taxes there. The most common reason businesses end up with nexus in a state is having employees or inventory there
Most states require that you register as an out of state business, and many of them have several separate registrations for the different tax types (e.g. payroll taxes, sales taxes, income taxes)
Once you’re a multistate business, your income must be “apportioned” between the states so each gets their share of tax on your income. Your home state will generally give you a credit for what you pay to the other states.
Many states require non-resident shareholders to withhold their personal income tax at the business level, which is often called a “composite” return.
Many of these things we can help with, and some thing we refer out. Talk to us about your multistate situation and we can help keep you compliant!
More FAQ’s and details below:
I have employees working in other states, what do I need to do? Every state has different requirements, but if you’re going to be doing business in a new state, there are generally a few different registrations you should be aware of:
Secretary of state registrations- Most states require you to register your business with their Secretary of state to be allowed to do business there. They usually require a “certificate of good standing” from your home state, along with a form listing the officers and owners, and a fee.
Payroll tax registrations - Most states have a separate registration for employment taxes, and your payroll company usually won’t let you run payroll without it.
Sales tax registration - If you sell goods or provide taxable services, you may need to register for sales tax purposes also.
Local taxes - Some states and cities also have separate local payroll or income taxes you need to register for.
So many registrations, how do I know which ones I need? Every state is different, we’ve been referring clients to services like Corpnet to help identify the registrations needed, and assist with the filings. That link will take you to their site, or if you’d like we can make a direct intro to our dedicated support rep. Just let us know.
OK I’m registered, what else do I need to do? Depending on which taxes you registered with, you likely have a few ongoing obligations:
Registered agent services - If you’re doing business in a state, you need to have a physical presence there where the state can send correspondence and/or visit. This could be an employee location, but more often businesses will use a registered agent service. It generally costs a few hundred bucks per year, but is a much more professional way to accomplish this than having corporate items going to an employees location.
Payroll tax returns - Your payroll service will handle these, but you should be aware of them.
Sales tax returns - If you sell goods or provide services that are subject to sales tax, you may also have a filing requirement in your new states. When dealing with multistate sales tax, we typically refer this out to services like taxjar and Avalara.
Income tax returns - That’s the part we do! As long as we’re aware of the states you’re operating in, we’ll help keep you compliant here.
Composite tax returns - This one is also us. Many states require the business to pay the income taxes on behalf of nonresident shareholders. We’ll prepare these along with your business returns.
Annual reports - In addition to tax filings, many states also have an annual report requirement. This is generally a simple report that lists the corporate address, officers and directors, along with a fee. Sometimes these are part of the tax filings, sometimes they are separate. Most registered agent services will remind you of these requirements via email. While in some cases we can assist with annual reports, these are not the same as the tax returns and are not something we automatically do. If you’re not sure, check with us.
So am I paying state taxes more than once? - Not really, when you’re a multi-state business, your income must be “apportioned” between the states. That means that each state gets to tax you on part of your net business income. If you are organized as a “Pass Through” entity (e.g. S-corp or LLC Partnership) then that means that you will also need to file in all those states personally. Most resident states will tax you on all of the income, but then give you a credit for the income taxes you paid to nonresident states.
I had no idea it would get this complicated! No kidding right? In the past we’ve discouraged clients from expanding multistate before they got to a size where it was worth the extra compliance, however with remote work and worker scarcity, multistate filings have become much more common place, even for smaller simple businesses. We’re happy to help, but the best way is to be proactive and discuss your filing requirements BEFORE you get involved in a new state!