Operating across state lines presents tax risks—or

This article organizes the original guidance on operating across state lines presents tax risks—or possibly rewards into clear sections for easier reading and reference.

Overview

This opening section presents the main context from the original post.

It’s a smaller business world after all. With the ease and popularity of e-commerce, as well as the incredible efficiency of many supply chains, companies of all sorts are finding it easier than ever to widen their markets.

Doing so has become so much more feasible that many businesses quickly find themselves crossing state lines.

But therein lies a risk: Operating in another state means possibly being subject to taxation in that state. The resulting liability can, in some cases, inhibit profitability. But sometimes it can produce tax savings.

Do you have “nexus”?

This section keeps the original guidance focused on do you have “nexus”?.

Essentially, “nexus” means a business presence in a given state that’s substantial enough to trigger that state’s tax rules and obligations.

Precisely what activates nexus in a given state depends on that state’s chosen criteria. Triggers can vary but common criteria include:

• Employing workers in the state,
• Owning (or, in some cases even leasing) property there,
• Marketing your products or services in the state,
• Maintaining a substantial amount of inventory there, and
• Using a local telephone number.

Then again, one generally can’t say that nexus has a “hair trigger.” A minimal amount of business activity in a given state probably won’t create tax liability there. For example, an HVAC company that makes a few tech calls a year across state lines probably would not be taxed in that state.

Or let’s say you ask a salesperson to travel to another state to establish relationships or gauge interest. As long as he or she does not close any sales, and you have no other activity in the state, you likely will not have nexus.

Strategic moves

This section keeps the original guidance focused on strategic moves.

If your company already operates in another state and you are unsure of your tax liabilities there—or if you are thinking about starting up operations in another state—consider conducting a nexus study. This is a systematic approach to identifying the out-of-state taxes to which your business activities may expose you.

Keep in mind that the results of a nexus study may not be negative. You might find that your company’s overall tax liability is lower in a neighboring state.

In such cases, it may be advantageous to create nexus in that state (if you don’t already have it) by, say, setting up a small office there. If all goes well, you may be able to allocate some income to that state and lower your tax bill.

The complexity of state tax laws offers both risk and opportunity. Contact us for help ensuring your business comes out on the winning end of a move across state lines.

Related Resources

These resources connect the article topic with related Bowers service pages and approved professional reading.

• Tax Services
• Business Strategy & Growth
• Mergers & Acquisitions
• Manufacturing
• Harvard Business Review
• Accounting Today

FAQ

The questions below summarize the main points already covered in the article.

What is the main focus of Operating across state lines presents tax risks—or possibly rewards?

The article focuses on operating across state lines presents tax risks—or possibly rewards and organizes the original guidance into sections for easier review.

What topics does the article cover first?

The article begins with do you have “nexus”? and then continues through the remaining points in the original post.

Which additional areas are included?

Additional sections include strategic moves.

Does the post include action items or reminders?

Yes. The original post includes listed items that have been kept in list format for easier scanning.

Was the original post wording changed?

The revision keeps the author wording and updates the structure so the post is easier to read online.