QUESTION: Could I owe tax in a state that my company has not physically been in?
As with most things related to state and local taxation (SALT), it depends! In many cases, yes, you can owe taxes to these states. This leads to a very important topic in the SALT world – Nexus.
Nexus is defined as the minimum connection between the taxing state and the taxpayer, property, or transaction necessary for the state to assess tax. Nexus standards vary greatly among the states. While some require a physical presence to assess income taxes, many only require an economic presence. Adding to the complexity, some states have strictly defined factors that lead to nexus automatically.
States have become very aggressive in imposing taxes on out-of-state businesses so it is critical to understand these standards and where you do business. The good news is that there is potential to limit nexus and minimize your exposure.
To learn more about this and other multi-state tax issues, join Stambaugh Ness Tax Manager, Jason Sneeringer during his webinar, Sorting through the Confusion: The Impact of Income & Franchise Taxes, on September 20.
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