It may be possible to reduce your state tax bill by establishing a business presence in more than one state. Being a multistate business has one advantage, says Elizabeth Burton, state tax specialist with accounting firm Grant Thornton in Chicago. If your business operates and only pays taxes in one state, you have to report 100 percent of your income to that state. But if your business is taxable in more than one state, you can divide up the company's income and the taxes owed among a number of states by using a specific apportionment formula set up by the individual states. When used effectively, apportionment may result in some business income not being taxed in any state.
Becoming a multistate business can be relatively easy. In some cases, all you really have to do is keep inventory in another state or just hire one salesperson who uses a small rented office there. To determine whether a tax strategy based on state apportionment policies will work for your company, check with a tax expert who specializes in state and local tax policies.