In their search for business taxes, states are attempting to prove what is known as "nexus." This means declaring a specific business activity (such as having a sales office located within a state) subject to state taxes. Nexus can also be established if an out-of-state company maintains tangible personal property in that state. Owning or leasing a warehouse in the state or owning land also creates nexus. Once a state proves nexus, it can subject a company to income, sales and use, and other business taxes.
Following the example of many state governments, municipalities are also taking steps to prove nexus. As a result, more business activity is becoming subject to local sales taxes.
As a business owner, if you find your company has tax-collection liabilities in a large number of states and localities, it's a good idea to determine exactly what activity is causing that liability, says John Logan, senior state tax analyst with CCH Inc., a provider of tax and business law information in Riverwoods, Illinois. After consulting with your tax advisor, you may find it advantageous from a tax standpoint to move a part of your business into a state with a lower tax rate.
In determining where you have a taxable presence, be sure to take both income, and sales and use taxes into consideration. Remember that when it comes to assessing income taxes on your business, your company must have some property and payroll in the state.
This type of review will help you determine in which states you have tax filing requirements and exactly what steps you need to take to be in compliance. If for some reason you have neglected to comply with the tax laws in a particular state, it's a good idea for you to try to reach an agreement with the tax collector there, says Neff.
One option is to take advantage of state amnesty programs to settle your outstanding liability. Under such programs, explains Neff, "states may be willing to reduce a company's tax bill for prior years and in some cases waive interest or penalties or both."