Your Next Move Could Put Your Firm on a State’s Radar

Winning a project in a new state is a reason to celebrate. Hiring the right employee, regardless of where they live, can strengthen your team. Expanding into new markets can fuel your firm’s growth.

But each of these everyday business decisions can also create state filing obligations that may go unnoticed for years.

The question isn’t just “Where do we have an office?” It’s “Where are we doing business — and what filing requirements have we created?” For architecture and engineering firms (AE), even a single project or employee crossing state lines can be enough to change that footprint.

One Project Can Create More Than Revenue

AE firms are particularly susceptible to multistate compliance issues because their employees, projects, and clients frequently cross state lines. 

Consider an engineering firm that wins its first project in a new state. Employees travel to the project site, the firm obtains an engineering license, and revenue is generated from the project. Those routine activities can potentially create multiple state obligations, including:

• Secretary of State registration
• Firm and individual professional licensing
• Income, franchise, or gross receipts tax filings
• Sales and use tax requirements
• Payroll withholding for traveling or remote employees

And here’s where compliance can get complicated: different state agencies often administer these requirements under different rules. Registering with the Secretary of State or obtaining a professional license does not necessarily mean the firm’s state tax obligations have been addressed. And that exposure doesn’t necessarily end with the first project. As a firm’s activities expand, so can its state filing obligations. 

Growth Changes Your State Footprint

As your firm grows, its state footprint changes. 

A new project, a remote employee, an acquisition, a new office, or increasing revenue in a state can each trigger new filing requirements. Even activities that seem temporary, such as sending employees across state lines to work on a project, may have tax and payroll implications.

For firms involved in a transaction or transition, these issues can become even more significant. Mergers, acquisitions, ownership changes, and ESOP transactions can also bring historical filing gaps to the surface. Discovering several years of potential state exposure during transaction due diligence can result in additional analysis, remediation, reserves, or negotiations at the wrong time.

Don’t Wait for the State to Find You

States have many ways to identify businesses operating within their borders. Payroll filings, Secretary of State registrations, professional licenses, customer information, company websites, and other records can provide information that a firm is doing business in a state.

That makes understanding your firm’s state footprint even more important before a notice or audit. The better strategy is to identify potential exposure proactively.

A multistate review can help determine where your firm may have filing obligations, when those obligations began, and the potential financial exposure. It also provides an opportunity to evaluate the appropriate path toward compliance, which may include filing prior-year returns or pursuing a Voluntary Disclosure Agreement.

Most importantly, the process can help establish procedures for identifying new filing requirements as your firm continues to grow.

Get There Before the States Do

The goal isn’t simply to respond to state requirements after they arise; it’s to understand where your firm stands before they become a problem. 

Growth shouldn’t come with unexpected state tax surprises. Understanding how projects, employees, revenue, registrations, and expansion activities affect your firm’s state footprint can help identify compliance gaps before they become larger problems.

Ready to take a closer look at where your firm may have exposure? Register for our webinar, Ready or Not Here They Come: Identifying Filing Requirements Before the States Do, to learn how common business activities can create unexpected filing requirements and how a proactive approach can help reduce financial and operational risk.

Don’t let a state notice, audit, or transaction due diligence process be the first indication that your firm has additional filing obligations. Join us to learn how to identify potential compliance gaps before the states do.