Year-end is a good time to review all operations and to ascertain if you are doing business in additional states. No matter where your company is headquartered, there’s a good chance you conduct business across other state borders. How do taxes work in this situation? Learn about multi-state taxes to ensure that your business is registered with each appropriate secretary of state, and collecting and submitting the proper taxes.
If your business is headquartered in one state, but you sell your products across the border, do you have to pay taxes in the recipients’ state? This answer depends largely on whether you have what is referred to as a “nexus,” meaning an establishment in the recipients’ state. So what is a nexus and what constitutes an establishment?
Any of the following might create a nexus in a given state:
- A temporary or permanent office
- A warehouse
- A storage locker
- A sales representative based in that state
The rules have a lot of subtleties, however, and each state may have slightly different interpretations of how the rules work, further complicating the issue. Take for example, New Jersey, which does a lot of cross-border business with New York and Pennsylvania. New Jersey says any of the following may create nexus:
- Selling, leasing, or renting tangible personal property or specified digital products or services
- Maintaining an office, distribution house, showroom, warehouse, service enterprise (e.g., a restaurant, entertainment center, business center), or other place of business
- Having employees, independent contractors, agents, or other representatives (including salespersons, consultants, customer representatives, service or repair technicians, instructors, delivery persons, and independent representatives or solicitors acting as agents of the business) working in the state
Of course, regulatory changes and court cases can change this interpretation at any time. Indeed, the New York State Department of Taxation and Finance issues more opinion letters on sales tax issues than on all other state taxes combined. Many states are desperate for additional tax revenues and are very ingenious at identifying out-of-state businesses operating in their jurisdiction.
With 45 states imposing a sales tax, it’s essential you stay in touch with us to ensure that you’re in compliance. Contact one of our tax professionals at Urbach & Avraham, CPAs to review your multi-state tax situation.