If you own a business and you do business in other states, you may have filing obligations in that state. Here’s a basic overview.
In general, if you’re selling a product and someone from outside of your state places an order with you, you probably don’t have any obligations to that state. (But you might want to research just to make sure.)
But if you provide a service and you cross state borders to provide that service to someone in another state, you probably do have filing obligations in that state.
Typical Filing Obligations
- Register to do business in that state. Generally sole proprietors don’t need to register (though in some states they do need to), but a corporation or an LLC generally will need to register to do business in that state.
- Check to see if that state assesses sales tax on your service. If so, you’ll need to collect sales tax from your customers in that state.
- File an income tax return in that state.
- Look at their payroll laws. If you have employees on your payroll (including yourself if you’re a corporation) and those employees are on the ground in that state providing a service, you may need to withhold state income tax from those wages. The exact rules and requirements vary from state-to-state.
These things can be confounding and frustrating to business owners, many of whom say they’re blindsided by the things they have to do when operating in other states.
One thing I have found is, you don’t want to try “flying under the radar” because states are aggressive at enforcing their revenue laws. There’s a high likelihood you’ll get caught. I and many other accountants say state revenue agencies can be worse to deal with than the IRS. You don’t want to run afoul of a state revenue agency.
As I’ve written before, the best advice is, tell your accountant BEFORE you start doing business in another state, so the requirements don’t come as a surprise and you can prepare for the financial and paperwork burden.
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“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”