One of the most confusing and dangerous areas for any company conducting business in multiple states is failing to comply with the myriad of requirements concerning the collection of sales and use taxes on the sales of goods and services and complying with each state’s income tax filing requirements. For multi-state businesses, some of the most frequently asked questions are “Do I have to collect sales/use tax on my sales?” and “Do I need to file an income tax return in that state?”. The answers to these questions are critically important as failure to properly comply with each state’s sales/use tax and income tax requirements can lead to crippling penalties.
In multi-state tax law, whether a business is required to collect sales and use taxes on the sale of goods or services or whether a business is required to file an income tax return in a state is dependent on whether a business has “nexus” with the state. Nexus can be defined as a seller’s minimum level of contact to a state that permits a state taxing authority to require a seller to collect and remit sales and use taxes and pay income taxes to the state. Whether nexus exists in a particular state is determined by a combination of the U.S. Constitution, federal laws, and state laws and is complicated even further as different rules are applicable in determining whether nexus exists for sales tax purposes and for income tax purposes.
Our Tax Attorneys can review your multistate operation in order to determine which jurisdictions in which you are required to file tax returns. By proactively identifying these filing responsibilities, potential penalties can be avoided.