Multi-state taxes are becoming more and more common as businesses become increasingly mobile. This type of tax is a collection of state and local taxes that are imposed on businesses that operate in multiple jurisdictions.
This blog post will explain what multi-state taxes are, what they cover, and the benefits of using them. We will also provide a few tips for preparing and filing your multi-state tax return. Let’s get started.
What Exactly Are Multi-State Taxes?
Multi-state taxes are a collection of state and local taxes that are imposed on businesses that operate in multiple jurisdictions. This type of tax is also known as a “nexus tax” or a “streamlined sales and use tax agreement.”
The purpose of multi-state taxes is to simplify the process of collecting state and local taxes from businesses that operate in multiple states. Rather than dealing with multiple tax rates and rules from each jurisdiction, businesses can deal with one set of rates and rules under the multi-state tax agreement.
What Does Multi-State Tax Agreement Cover?
The streamlined sales and use tax agreement covers most state and local sales taxes and some excise taxes. It also includes several administrative rules, such as uniform definitions of taxable items and requirements for filing returns.
The multi-state tax agreement is updated regularly to reflect state and local tax laws changes. The most recent update was in August of 2021, and it includes new rules for taxing digital goods and services.
What Are the Benefits of Using Multi-State Taxes?
There are several benefits to using multi-state taxes:
Reduced administrative costs – Businesses can save time and money by dealing with one set of rates and rules instead of multiple rates and rules from each jurisdiction.
Increased compliance – Businesses that operate in multiple states are more likely to comply with tax laws when they use a single, streamlined system.
Greater transparency – The multi-state tax agreement provides a single, transparent framework for collecting state and local taxes. This makes it easier for businesses to understand and comply with tax laws.
How Do I Prepare and File a Multi-State Tax Return?
Preparing and filing multi-state returns for business taxes can be complex, so it is important to seek professional help. Here are a few tips to get you started:
• Make sure you are registered with the streamlined sales and use tax agreement – You need to be registered with the streamlined sales and use tax agreement to file a multi-state tax return. You can register online or by mail.
• Collect your sales data – To calculate your taxes, you will need to collect sales data for each state in which you operate. This data can be collected from invoices, purchase orders, and other business records.
• File your return – You can file your multi-state tax return online or mail. The deadline is generally April 15th, but it may vary depending on the state.
How Do I Know How Much I Owe In Each State?
The best way to determine how much you owe in each state is to calculate your taxable sales for each state. This can be done by multiplying your total sales by the applicable tax rate. You may also be able to use a cross-border exemption or deduction to reduce your tax liability.
It is important to note that these calculations are complex. It is best to seek professional help if you are unsure about how to proceed.
Non-Resident In Another State
If you are a non-resident of another state, you may still be subject to that state’s taxes. You will need to file a non-resident return to report your income and expenses from that state. You may also be able to claim a credit or deduction for taxes paid to another state.
Nexus is the term used to describe the connection between a business and a state or local jurisdiction. A business has a nexus in a state if it operates in that state, even if it does not have a physical presence. This means that businesses can be subject to tax in states where they do not have offices or employees.
What If I Have Nexus in More Than One State?
If you have nexus in more than one state, you must file a multi-state tax return. This return will allow you to calculate your taxes owed in each state. You may be able to use apportionment or allocation methods to reduce your tax liability.
Determining If The Time Spent In A State Was Permanent or Temporary?
The presence of a permanent or temporary home in a state is one factor that the courts look at when determining if someone is a state resident for tax purposes. Other factors include the amount of time spent in the state, the nature and extent of business activities in the state, and ties to the state, such as owning property or having family living there. If you are unsure about your residency status, it’s best to speak with professional Tax Services.
Proving Your Move Was Permanent
If you have made a permanent move to a new state, you must prove it to the tax authorities. This can be done by providing evidence such as copies of leases or mortgages, driver’s licenses, voter registration cards, and utility bills in your name at your new address. You may also be asked to provide an affidavit from family or friends stating that you have moved permanently and do not intend to return to your old home.
If you are temporarily working in a new state but still maintain a residence in your home state, you will only be taxed on income earned while working in the new state. You will not be subject to income tax on income earned in your home state. However, you may still be subject to other taxes such as sales tax and property tax.
Reciprocity is the term used to describe the agreement between two states to tax each other’s residents equally. This means that if a business has nexus in both states, both states will tax it. Reciprocity agreements are generally bilateral (between two states) or multilateral (between multiple states).
Employees Working in Multiple States Without Reciprocity
If an employee works in multiple states without reciprocity, they are subject to tax in the state where they work. The employer is generally responsible for withholding taxes and filing a return on behalf of the employee. However, if the employee works in more than one state without reciprocity, the employer may be able to use apportionment or allocation methods to reduce their liability.
What If I’m Tax-Exempt?
You may still be subject to state and local sales taxes even if you are tax-exempt. However, you may be able to claim an exemption from these taxes. You will need to file an exemption certificate with the appropriate authorities to qualify for this exemption.
Digital Goods and Services
The multi-state tax agreement includes new rules for taxing digital goods and services. These rules apply to businesses that sell or lease digital products and services, such as software, music, movies, and e-books. The new rules allow states to tax these products and services as tangible goods and services at the same rate.
When To File Multi-State Taxes
The deadline for filing multi-state taxes is generally the same as the deadline for filing federal taxes. This means that the deadline for most businesses is April 15th. However, there are a few exceptions to this rule. You should check with your state’s tax authority to find out the specific deadlines for your state.
Spouses Working in Different States
If one spouse works in a state with nexus and the other spouse works without nexus, the couple is still subject to tax in the state with nexus. This is because the income of both spouses is combined when calculating taxes. However, the couple may be able to use apportionment or allocation methods to reduce their liability.
Multi-State Taxes In Review
You need to keep in mind very important points when filing multi-state taxes. Here are some of the things we have previously discussed that you need to remember:
- You will need to file a multi-state tax return if you have nexus in more than one state.
- You may be able to use apportionment or allocation methods to reduce your tax liability.
- The deadline for filing multi-state taxes is generally the same as the deadline for federal taxes.
- If one spouse works in a state with nexus and the other spouse works without nexus, the couple is still subject to tax in the state with nexus.
Get In Touch With Nesso Tax
While the rules for multi-state taxes can be complex, there are tax experts who can help ensure you are compliant with the law. At Nesso Tax, we have a team of experienced tax professionals who can help you with all aspects of your taxes, including filing returns in multiple states.
If you have questions about your residency status or how to file taxes in multiple states, it’s best to speak with our Nesso Group team of experts. We can help you determine your residency status and advise you on how to file your taxes. Contact us today to learn more about how we can help you.