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QUESTION: If I have a project in another state, but we never set foot in that state, am I required to pay that states taxes?
ANSWER: This is a typical tax answer, but I am going to use it anyway! It really depends upon your unique situation. There are 46 states with corporate income taxes. We won’t even begin to discuss all of the various taxes that currently exist, but income is by no means the only tax. Regardless of tax type every state has a different set of regulations regarding the treatment of the sourcing of revenue and sales. This is referred to as apportionment. Historically, most states used the cost of performance method for the sourcing of sales. It’s easy to calculate and simply means that the sales or revenue is assigned to the state where the services were performed. Over time however, states have been pushing to get what they consider their fair share of taxes. Thus, many states are changing their method of sourcing sales and revenue and shifting towards the concept of market based sourcing. With market based sourcing, presence is not required. In other words, even if the work is performed from your home state without ever setting foot in the state where the customer is located, the revenue or sales are taxable. It is important to know which states use what method to minimize your overall tax liability. There is the potential for a firm to be taxed on the same revenue more than once.
To learn more about multi-state tax issues, join Stambaugh Ness Principal and Tax Director, Jennifer Nelson and Tax Manager, Jason Sneeringer during their webinar, “The Impact of Multi-State Taxation on Professional Services Firms”, on Wednesday February 15.
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Contact Heather Zecher at hzecher@stambaughness.com