In this unpredictable economic and political season, states are under intense budget constraints and many are in deficits that will take years to reverse. Based on these constraints and deficits, states are looking for additional revenue and some have become very aggressive in pursuing tax collections. These states are especially looking at out-of-state businesses which might have nexus in their state. Nexus is defined as a connection or presence, and in the tax world this determines if you, as a small business owner, have a tax liability in a state other than your home state. Given that each state defines nexus differently, many business owners aren’t aware that they could have a tax liability in another state. Such a liability, undiscovered, could lead not only to taxes owed but extensive penalties and interest should it be determined that taxes were owed and not reported and paid.
Each state writes its own statutes that define nexus, how income/losses must be sourced to that state, and when a state tax return must be filed. These statutes can vary widely and are often complex.
Here are some questions you should answer to help determine if you might have nexus in another state:
- Is your business registered in that state?
- Do you maintain a physical office, fixed assets, or inventory in that state?
- Do you have taxable wages paid to employees in that state?
- Do you have employees who perform services in that state?
- Do you solicit sales or services in that state?
- Do you have any regulatory or state licensing requirements in that state?
These are just a few of the questions that might be included in a given state’s nexus questionnaire. If the answer to any of the above questions is yes, or you think you might have nexus in a state other than your home-state, you should contact your CPA as soon as possible. State and local tax compliance is an important issue facing small business owners that conduct business in multiple states and proper planning is the key to minimizing the tax liability as well as the potential penalties and interest that will be assessed if not addressed. The tax professionals at BSB are ready to assist you and answer any questions you might have regarding this issue.
Contact us at firstname.lastname@example.org or 703-591-5200 to speak to any of our professionals.