If you are contemplating expanding your business into more than your home state, there are several factors to consider.
Do I need to register in the other states?
The answer to this (like so many other tax questions) is it depends. If you have a physical presence in another state, e.g. a retail location, then you must register. If your business is conducted online from you home base, chances are that you don’t need to register with other states.
Do I have to collect sales taxes?
Again the answer is it depends. If you have a physical presence in a state that has a sales tax, you generally are liable for collecting the tax from your customers. Different states have different definitions of physical presence and also have different definitions of what is considered a taxable sale. In some states, however, you do not even need a physical presence in order to be liable for sales tax.
Do I have to pay income taxes to other states?
The large majority of states have an income tax. If you have a presence in that state (again the definition varies by state) then you will be subject to income tax on the amount of income that is apportioned to that state. The formulas for determining apportioned income vary by state.
Do I need to do anything differently if I am an S Corporation?
Most states do not require a separate election to be treated as an S Corporation. If you have a valid Federal election, the state will treat you as an S Corporation. Some states, however, require a separate S election (New Jersey for one).
If you are planning to expand your business into other states, it is extremely important that you are properly set up to conduct business in those states before you start conducting business there. If you are not set up properly it can be costly. For example, New Jersey charges a fee per year for a late filed S election. There could be penalties and other inconveniences such as delayed refund.
As always, this is only meant as a brief overview. If you feel that we can be of further assistance to you, please contact our office to set up an appointment.
Email us at: [email protected] or Call us at: 302-239-3500.
- Doherty & Associates Team