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The wonderful nightmare of state taxes

July 14, 2009

No taxpayer is more popular with politicians than one who can't vote. That makes out-of-state businesses a favorite target of cash-hungry pols.

Many growing businesses quickly expand beyond their home state. It's surprisingly easy to become liable for income taxes in new states - it can take as little as delivering goods in a company vehicle. Any activity in a state beyond soliciting sales for fulfillment from out of state can give you "nexus," making you fair game for state income tax enforcers.

For taxes other than income taxes, it's even easier to fall into their clutches. You can get nexus for sales taxes and "doing business" taxes just by having independent agents selling your goods in a state. More states are adopting "franchise" or "gross receipts" taxes to take advantage of the lower nexus standard. Texas, Ohio, Pennsylvania and Michigan are among the most aggressive, but none of the states are shy on this front.

States are becoming more sophisticated in using data mining to identify potential out-of-state taxpayers. As you add new customers, ask yourself what new sales tax obligations will result.

Remember: If you don't file state tax returns in a state, there may be no statute of limitations if they come after you.

Next: Sales and Use Taxes

While the Tax Update takes its summer vacation, we are serializing my chapter in "How Business Gets Done: Words of Wisdom by Central Iowa Experts." You can buy your own copy at Lulu.com by clicking on the link.

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