So, your startup is growing. Sales are rolling in, maybe you’ve hired a remote team, and things are looking really good—until you hear the dreaded phrase: multi-state tax compliance.
Wait… what? You’re based in Texas. You don’t have an office in California. So why is California suddenly asking you for sales tax?
Welcome to the world of multi-state taxes, where states want a cut of your revenue even if you’ve never set foot there. The good news? You don’t have to panic. You just need to understand the basics (and have a rock-solid tax strategy).
Let’s break it down in a way that makes sense, keeps you compliant, and most importantly saves you from nasty tax surprises.
First Things First: What is Nexus?
“Nexus” is a fancy tax term for “you owe us money.” If your business has nexus in a state, that means you may have to collect and remit sales tax, file state income tax, or comply with other tax laws there.
How Does a State Decide You Have a Nexus?
- Physical Presence Nexus: If you have an office, warehouse, or even inventory stored in a state (like through Amazon FBA), that state can say, “Congrats, you owe us taxes.”
- Economic Nexus: Some states don’t care where you’re physically located. If you sell a certain amount of products or services there (usually $100K in revenue or 200 transactions), you’re on the hook for taxes.
- Employee Nexus: If you hire a remote employee in another state, you may now owe payroll taxes and state income tax filings in that state.
Real-World Example: Let’s say you’re a Texas-based startup with a marketing lead in Oregon and a co-founder in New York. That means:
- Oregon may require you to withhold payroll taxes.
- New York may want you to file state income tax (yes, even if you’re based in Texas).
See how things get complicated fast? That’s why startups need to stay ahead of this. An Austin, Texas CPA (like Insogna CPA) can help figure out exactly where you have tax obligations.
Multi-State Sales Tax: What Startups Need to Know
If your business sells products or services in multiple states, you need to pay attention to sales tax rules. Here’s why:
- Every state has different rules – Some tax digital products, others don’t. Some require sales tax collection at $100K in sales, others at $500K.
- Selling through Amazon, Etsy, or eBay? Some states let marketplaces collect sales tax for you, but not all of them.
- Miss collecting sales tax? The state will still want their cut out of your pocket.
Solution: Tools like TaxJar and Avalara automate sales tax collection and filing. But even the best software needs expert oversight. That’s where an Austin tax accountant comes in to make sure you’re actually compliant.
State Income Tax: Do You Need to File?
Here’s the problem: every state makes up its own tax rules. Some have no state income tax (like Texas and Florida). Others (California) make sure they get their money.
Your startup may need to file state income tax returns if:
- You make money from customers in another state
- You have remote employees in a state with income tax
- You hold business licenses or franchise tax obligations in certain states
Example: A Texas-based SaaS startup with customers in California and remote developers in Illinois might be required to file income tax returns in both states, even though Texas doesn’t have state income tax.
Solution: An Austin, TX accountant can review your business and tell you exactly where you need to file (before the state sends you an unexpected bill).
How to Stay Compliant (Without Losing Your Mind)
If you’re selling, hiring, or expanding across state lines, here’s how to stay ahead of multi-state taxes:
✔ Track Where You Have Nexus: Keep a list of where you have employees, customers, or significant sales.
✔ Use Sales Tax Automation Tools: TaxJar, Avalara, and a CPA firm in Austin, Texas, can help you automate tax collection.
✔ Register & File on Time: If required, register for sales tax permits, payroll tax accounts, and state income tax filings.
✔ Stay Updated on Tax Law Changes: Tax laws change constantly so work with a tax advisor in Austin to stay compliant.
Need Help with Multi-State Tax Compliance?
Multi-state tax compliance doesn’t have to be a nightmare—not when you have the right team on your side.
At Insogna CPA, a leading CPA firm in Austin, Texas, we help startups and growing businesses:
✔ Determine where they owe taxes (nexus analysis)
✔ Automate multi-state sales tax collection & filing
✔ Handle payroll tax compliance for remote employees
✔ Stay on top of state income tax filings
Let’s make sure your business is multi-state tax ready! Schedule a compliance check-up with Insogna CPA today.