Doing Business in Other States: Understanding Income Nexus
Expanding your business to other states can offer exciting opportunities for growth, but it also brings a host of new challenges, particularly when it comes to understanding and complying with various state tax laws. One critical concept to grasp is “income nexus,” which determines whether your business activities in another state subject you to its income tax requirements. Here’s a comprehensive guide to help you navigate income nexus and ensure your business remains compliant across state lines.
Income nexus refers to the connection between a business and a state that obligates the business to pay state income taxes. There are some key activities that create income nexus:
- Physical Presence – having an office, store, warehouse in another state
- Employees and Contractors – employees or contractors who work in another state
- Property Ownership – owning property in another state
- Economic Presence – focuses on the volume of sales or the number of transactions that occur in another state.
Once you’ve determined that your business has income nexus in another state, the next step is to ensure compliance with that state’s tax laws by registering with the state tax authorities and filing state income tax returns.
Understanding income nexus is essential for any business looking to expand its operations beyond its home state. While the complexities of income nexus may seem daunting, taking a proactive and informed approach will help you navigate this aspect of interstate business expansion with confidence.
For any questions, feel free to reach out to our office with questions.
Renee Greenspan, EA
