The moment your business crosses a state line — by hiring a remote employee, shipping product to customers in another state, or sending a salesperson on a road trip — you may have created a tax obligation in that state. Multi-state tax compliance is one of the fastest-growing compliance challenges for growing U.S. businesses, and one of the most consistently mismanaged.
FJ & Associates, PLLC helps Utah businesses understand where they have tax obligations, get registered correctly in each state, and maintain ongoing compliance across every jurisdiction — without letting multi-state complexity become a liability.
📞 (801) 927-1337 | Schedule a consultation →
What Creates Tax Obligations in Other States?
Nexus — The Threshold Concept
“Nexus” is the level of connection between your business and a state sufficient to require you to collect that state’s taxes or file a return. Nexus can be created physically or economically:
Physical nexus is created by:
- Employees working in the state (including remote employees)
- Property — inventory, equipment, or a leased space — located in the state
- Sales representatives or contractors operating in the state
- Attending trade shows in the state (in some states, a single trade show creates nexus)
Economic nexus is created by:
- Reaching a state’s sales threshold — typically $100,000 in sales or 200 transactions in a 12-month period, per the South Dakota v. Wayfair (2018) Supreme Court ruling
- Different states have different thresholds; some use sales volume only, others use transaction count only, others use both
Types of Multi-State Tax Obligations
State Income Tax
If your business has nexus in a state that imposes a corporate income tax or a franchise tax, you may need to file a return and pay tax in that state. States apportion income using formulas that weight sales, payroll, and property within the state. Utah uses a single-sales-factor apportionment formula.
State Sales Tax
Post-Wayfair, businesses selling taxable goods or services into states where they have economic nexus must register, collect, and remit that state’s sales tax. With 45 states (plus the District of Columbia) imposing sales tax, this obligation can be complex for e-commerce businesses and multi-state service providers. See our sales tax nexus guide for a dedicated analysis.
State Payroll Withholding
Employees working in a state create payroll tax obligations in that state — withholding registration, state income tax withholding, and unemployment insurance (UI) registration. Remote employees are a particularly common trigger. See our remote employee tax guide for details.
Franchise and Gross Receipts Taxes
Some states impose franchise taxes or gross receipts taxes in addition to or instead of income taxes. Texas imposes a margin tax. Ohio and Nevada impose gross receipts taxes. These obligations are separate from income tax and require separate registrations and filings.
State Apportionment — How Your Income Gets Divided
If your business has nexus in multiple states, each state taxes only the portion of income “apportioned” to that state. The apportionment formula divides your income based on the ratio of your in-state activity to total activity.
Utah’s single-sales-factor formula: Utah apportions corporate income based solely on the percentage of sales occurring in Utah relative to total sales everywhere. Other states use three-factor formulas weighting sales, payroll, and property equally or giving enhanced weight to sales.
Why apportionment matters: Without proper apportionment, your business could be subject to double taxation — paying full income tax in multiple states on the same income. Proper planning and consistent filing prevent this.
Voluntary Disclosure Agreements (VDAs)
If your business has unregistered multi-state obligations — sales tax collected but not remitted, income tax not filed in a state with nexus — a Voluntary Disclosure Agreement (VDA) allows you to come into compliance with limited lookback period and penalty waiver.
Most states participate in the Multistate Tax Commission’s National Nexus Program, which allows businesses to resolve multi-state obligations simultaneously. We evaluate your VDA eligibility and manage the disclosure process to minimize back-tax exposure.
Multi-State Tax FAQs
Does hiring one remote employee in California create tax obligations there?
Yes. A California-based remote employee creates California payroll withholding and UI obligations immediately. California’s aggressive enforcement means registration should happen before — not after — the employee’s first paycheck.
My Utah e-commerce business ships to all 50 states. Do I owe sales tax everywhere?
You owe sales tax in every state where you’ve crossed the economic nexus threshold — typically $100,000 in sales or 200 transactions. If you’ve been selling multi-state for several years without registering, a VDA review is the right first step.
What is the risk of ignoring multi-state tax obligations?
States actively pursue businesses with unregistered nexus — particularly post-Wayfair. Assessments include back taxes, interest (typically 8–12% annually), and penalties. Some states allow lookback periods of 3–7 years. The exposure compounds quickly.
Can I deduct state income taxes paid on my federal return?
For business entities, state income taxes paid are deductible as a business expense on the federal return. For individuals, the SALT deduction for state income taxes is currently capped at $10,000 for itemizers. The Utah pass-through entity tax election partially addresses this limitation for pass-through owners.
Get Multi-State Tax Compliance Under Control
📞 (801) 927-1337
✉ admin@cpaone.net
📍 612 N Kays Dr Suite 120, Kaysville, UT 84037
Schedule a Multi-State Tax Consultation →
See also: Sales Tax Nexus Guide | Remote Employee Tax Rules | Utah Business Tax
Missy Dennis, CPA | Partner | FJ & Associates, PLLC | Kaysville, Utah
Missy holds a Master of Accounting degree from the University of Utah and is a licensed Certified Public Accountant. She is committed to providing clear, accurate, and actionable guidance so clients can navigate complex financial decisions with confidence. With more than twenty years of public accounting experience, Missy Dennis specializes in: Tax preparation and tax advisory; Bookkeeping strategy alignment; Estate and trust taxation; Audit and consulting services; Low-income housing tax credits; Non-profit accounting; Small- and mid-sized business advisory.
