Doing Business in Another State? Accounting and Tax Implications to Be Aware Of
As your business begins to grow, you may find yourself with new accounting and tax implications to work through. Opening another business location, selling in multiple different states, or even sending employees to complete work across state borders can open your business up to added responsibilities and taxes. Sales tax, payroll reporting, and multi-state tax returns all need to be considered once you begin expanding into new territories.
Selling in different states subjects your business to sales tax requirements. No physical business location needs to be found in the other state for you to be on the hook for additional taxes. Instead, treaties between states, exempt goods, and sales levels are factors that determine your reporting requirements. Most businesses choose to pass the added taxes down to the consumer through increased prices or sales tax included in invoices for large orders.
Small businesses located near state borders may have employees and customers who reside in a different state. When work is performed outside of the state your permanent establishment is in, you may need to withhold payroll taxes specific to the other state. This increases your payroll reporting requirements, which regulatory agencies closely track. Moreover, in some states, employees who live in a different state must have that state’s payroll taxes withheld regardless of where the work is performed. Understanding the specific requirements that give way to this situation is critical to generating accurate payroll tax forms for both your business and employees.
Multi-State Tax Returns
Work performed or sales to different states can result in a multi-state tax return being needed. Most states have a nexus, which is a sales threshold before your business must file a state return. The nexus for most states remains around $500,000 but does vary by state and year. Multi-state tax returns generate the need to accurately track sales to each state in order to properly file required state returns. Neglecting to file the proper returns can result in back taxes with high fines and penalties assessed.
These are just three of the situations that small businesses need to deal with as their business reaches different states. Proper reporting of these items is key to staying in complete compliance with regulatory agencies, calling on the need for an accountant working alongside you. The team at Tax Geaks understands when different accounting and tax requirements are triggered, making them your qualified consultant and accounting expert. Reach out to a team member today for more information.