What Are Common Problems for Multi-State Businesses?

So the most common problem I see for multi-state businesses is a failure to understand what the problem is and what I mean by that is depending on your level of sophistication, you may rely on a CPA for tax advice. You may have the benefit of having an internal CFO or an internal controller or somebody else who kind of guides you through the financial world. The problem with most companies is when most companies think about taxes, they're thinking about federal income tax and potentially state income tax, but if they're thinking about state income tax, they're only thinking about the state that they're in. So the problem with multi-state taxation is you're bringing in laws of different jurisdictions that may be out of the core competency of the people that you trust for your tax reporting and advice. Let's take a CPA for example. Most CPAs don't specialize in multi-state taxation. If you think about your CPA, your CPA probably specializes in preparing federal and state corporate income tax returns or they may do individual returns as well and so their bread-and-butter, their day in and day out, is preparing federal and state income tax returns. The problem in doing that is a multi-state taxation is a different animal, so in preparing your federal and state income tax returns, a lot of accountants don't realize that the activity that you're conducting is creating Nexus or subjecting you to liability in different states. It's not something that they generally catch because it's not something that's that's in their wheelhouse or that they're thinking about. I mean you're watching this video right now. Take your own individual situation. When was the last time you talked to your CPA about multi-state tax consequences? When was the last time your CFO brought up "hey you know we're expanding in all these different states, what are the jurisdictional requirements in different states?" Multi-state taxation is not an issue that a lot of companies think about. You don't really think about the engine of your car unless the check engine light comes on but because of the shifting landscape in this area, because the states are aggressively expanding their tax bases, it's a huge area of risk for a lot of businesses so it's important to understand the many variables that go into multi-state taxation and make sure you have an appropriate and effective plan for dealing with that.


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law