The Serious State of Multi-State Taxation

serious state multi state taxation

Companies today are experiencing growth opportunities like never before, including expanding into multiple states. But this no-boundary business level has its share of complexities and possible consequences. So, welcome to the new era of work, where remote collaboration and business travel are the norm. Let us look into the complexities of how state tax laws apply to those working from home, those constantly on the move, and the generation of state tax implications, compliance, and reporting.

Tax Challenges of Remote and Traveling Employees

As the lines between office and home blur, so do state tax boundaries. Employers often grapple with questions like: Where should I report state wages and withhold state income tax? What if my employees are working in a different state? For those living out of suitcases, state tax considerations add more complexity for employers and employees. The frequent traveling of employees can trigger tax obligations in multiple states. Understanding the concept of “nexus,” the connection with a state, is crucial for businesses. Business activities in various locations, including remote and traveling employees, generally create nexus and affect state income tax, sales tax, payroll tax, and other state tax reporting. 

Compliance and Reporting

Navigating state tax regulations requires an understanding and awareness of compliance responsibilities. State tax registrations and the “doing business” concept are crucial aspects of compliance for businesses operating in multiple states. When expanding your business into new states, it is important to understand the legal and state tax implications and comply with registration and reporting requirements. Is there sufficient nexus (a connection) with the state to trigger a registration to transact business in the state and required compliance with state tax obligations? Be proactive and make determinations before conducting business activities in a state to stay ahead of compliance and reporting obligations.

Why Should I Be Concerned?

Companies need to be aware of the ever-changing landscape of state and local taxation because the days of flying under the radar of compliance are over. We have seen businesses take risks with state taxing authorities. Going this route is strongly discouraged. For the past few years, the state trend has been to invest in personnel and technology to increase collection efforts.

States are continuing to adapt to the evolution of business and technology and its impact on the overall state and local tax environment. Companies should start to change or implement processes to ensure compliance with each jurisdiction to avoid high penalties and interest for non-compliance. 

Next Steps

Understanding state taxation is necessary for both employers and employees. Whether you’re welcoming the flexibility of remote work or are constantly on the move, being aware of your state tax obligations ensures a trouble-free journey. Stay informed, stay compliant, and confidently navigate the state taxation maze!

Please watch Stambaugh Ness’s State Tax Advisory Services team for our on-demand webinar on Determining Your State Tax Readiness. We will discuss state tax triggers, sourcing service revenue, requirements for mandatory registrations, and an update on recent state tax-related developments.

Karen Poist

Kimberley Tarnakow