August 30, 2016
Are You In Compliance With Your Multi-State Income Tax Filings?
Share this article...
On December 22, 2017, The Tax Cuts and Jobs Act was signed into law. The information in this article predates the tax reform legislation and may not apply to tax returns starting in the 2018 tax year. You may wish to speak to your tax advisor about the latest tax law. This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
Article Highlights:
But what may be overlooked is the possible requirement to file returns in other states as well. This can happen in a variety of situations. Here are some examples for individuals:
Business entities can also be subject to state taxes in multiple states and to filing requirements in states where they have a ”nexus.” Although a nexus is defined on a state-by-state basis, certain activities or conditions indicate when a nexus exists. A nexus is generally present in the following situations:
Many states are extremely aggressive in their interpretation of a nexus, often leading to confrontations with state tax authorities. It is relatively easy for states to find delinquent tax filers by matching payroll, sales or property tax forms against required income tax filings.
Although filing multiple state returns means more paperwork, it does not necessarily mean more taxes. Generally, income must be either apportioned among the states, or where it is taxed by two states, generally a tax credit is provided, usually by the resident state, to offset the taxes paid to the other state. Any individual or business entity state-filing requirement is of course based on each state's tax laws, and they vary widely.
If you feel you have a multi-state individual or business entity filing requirement based upon the sources of your income or nexus with multiple states in either the current or a prior year, please call this office so your particular filing requirements can be determined.
- Individuals with Multi-State Income
- Businesses with Nexus In Multiple States
- Federal Law PL 86-272
- Dual Taxation
But what may be overlooked is the possible requirement to file returns in other states as well. This can happen in a variety of situations. Here are some examples for individuals:
- If they earned wages in another state.
- If they have rental property in another state.
- If they receive gas or oil royalties from another state.
- If they are a partner in a partnership or stockholder in an S corporation doing business in another state.
Business entities can also be subject to state taxes in multiple states and to filing requirements in states where they have a ”nexus.” Although a nexus is defined on a state-by-state basis, certain activities or conditions indicate when a nexus exists. A nexus is generally present in the following situations:
- Incorporation within a state
- Having legal domicile within a state
- Having a principal place of business within a state
- Having an office or other facility within a state
- Employment of capital or property within a state
- Providing services within a state
- Solicitation of business from within a state
Many states are extremely aggressive in their interpretation of a nexus, often leading to confrontations with state tax authorities. It is relatively easy for states to find delinquent tax filers by matching payroll, sales or property tax forms against required income tax filings.
Although filing multiple state returns means more paperwork, it does not necessarily mean more taxes. Generally, income must be either apportioned among the states, or where it is taxed by two states, generally a tax credit is provided, usually by the resident state, to offset the taxes paid to the other state. Any individual or business entity state-filing requirement is of course based on each state's tax laws, and they vary widely.
If you feel you have a multi-state individual or business entity filing requirement based upon the sources of your income or nexus with multiple states in either the current or a prior year, please call this office so your particular filing requirements can be determined.
Printable PDF