Alyssa McBride, CPA •
Do you have to file a tax return in multiple states? You may hear that question every year from your accountant. Having a requirement to file tax returns in multiple states is becoming more and more prevalent. If you have employees who work in another state, have property in another state, ship to other states, or even if you perform work in your state for an out of state business you could potentially have a liability to register and file tax returns in that state depending on the laws of that state. That list is not all-inclusive!
Do you have to file a tax return in multiple states? You may hear that question every year from your accountant. Having a requirement to file tax returns in multiple states is becoming more and more prevalent. If you have employees who work in another state, have property in another state, ship to other states, or even if you perform work in your state for an out of state business you could potentially have a liability to register and file tax returns in that state depending on the laws of that state. That list is not all-inclusive!
It is better to file your taxes now, or upon determining that you have a liability, and to register as soon as possible than to wait and hope the state doesn’t realize you should have filed, resulting in a tax liability, penalties, and interest.
You may worry that filing a tax return this year increases your risk of being audited in a previous year when you probably should have filed and didn’t. That could be true, but continuing to not file and/or register magnifies your risks. One of which may be the ability to receive legal recourse in that state. If you previously registered in a state and want to deregister in that state, you often have to catch up on all of the unfilled tax returns in order to properly deregister so you could simply be accruing penalties on a tax liability you’ll eventually have to pay.
Keep in mind that tax requirements are more than just income tax, you also could owe state payroll taxes, sales taxes, and other excise taxes. Although the statute of limitations is typically three years, it doesn’t begin until a return is filed which means that the liability for those taxes will never simply go away. Any years for which you had a tax liability will remain open and penalties and interest will accrue on the unpaid balance.
Eventually, you may come to the point where you want to sell your business. If a prospective buyer does their due diligence and finds out you didn’t do required state filings or registrations, they may see that as too risky and chose not to buy, or push a reduced price in order to shelter the liability.
This year when your accountant asks if you need to file in multiple states, consider the question carefully and ask questions if you’re not sure. In the long run, it makes sense to do your research now.
State tax requirements can be a complicated issue so if you have any questions make sure to reach out to your accountant.
You may worry that filing a tax return this year increases your risk of being audited in a previous year when you probably should have filed and didn’t. That could be true, but continuing to not file and/or register magnifies your risks. One of which may be the ability to receive legal recourse in that state. If you previously registered in a state and want to deregister in that state, you often have to catch up on all of the unfilled tax returns in order to properly deregister so you could simply be accruing penalties on a tax liability you’ll eventually have to pay.
Keep in mind that tax requirements are more than just income tax, you also could owe state payroll taxes, sales taxes, and other excise taxes. Although the statute of limitations is typically three years, it doesn’t begin until a return is filed which means that the liability for those taxes will never simply go away. Any years for which you had a tax liability will remain open and penalties and interest will accrue on the unpaid balance.
Eventually, you may come to the point where you want to sell your business. If a prospective buyer does their due diligence and finds out you didn’t do required state filings or registrations, they may see that as too risky and chose not to buy, or push a reduced price in order to shelter the liability.
This year when your accountant asks if you need to file in multiple states, consider the question carefully and ask questions if you’re not sure. In the long run, it makes sense to do your research now.
State tax requirements can be a complicated issue so if you have any questions make sure to reach out to your accountant.
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