Multi-State Tax Law Complexity
Taxes are already complicated as it is, but when you factor in the possibility that you may have to do business in different states, well then you are going to have to step your game up. The realm of multi-state tax is complex because each state is sovereign when it creates tax laws. This is particularly relevant when a foreign company wants to do business with the U.S.
The first factor that may cause some confusion among tax-filers is the concept of nexus. Nexus basically means connection, but in the world of taxes, it is the minimum amount of presence that a company must have in a state in order for that company to have to abide to the tax laws in that particular state. The challenging part of this is that the amount of presence it takes for a company to reach nexus varies in each state.
Federal and State
The blurred line between federal and state rules on taxes is another issue that companies have to deal with. Federal tax rules apply to all citizens living in the U.S. The laws are created by legislators and enforced by the IRS, a Federal agency, on all citizens regardless of which state they live in. Apart from federal tax returns, citizens must also file state tax returns to the individual State’s government. Each state has separate rules regarding taxes, there is no system that adjoins all the state tax laws.
From Product to Service
A significant change that has recently found its way into the U.S is the transformation from products to services. Technology, the culprit behind this transformation, changes so fast that state tax laws cannot keep up. As new services are introduced into our economy, companies and legislators become more and more complex.
It is important for companies to be aware of these anomalies so that they can maximize their revenues and avoid penalties.