Business owners with work in multiple states

[hikeandgolf]

I just started my business (structural engineering) this year and I am in the process of reading a tax book. One thing it warns about is providing a product in multiple states and making sure the correct states are paid the correct amount of taxes. The book seems to be referring to businesses that sell a product and it doesn't necessarily mention service businesses. So I'm wondering if I should split my income into the amount performed in each state (five total states). The book says it's more work to do this, but could end up benefitting you greatly, especially if your home state has a high tax rate (mine does). Do any business owners with work in multiple states have any thoughts or experience with paying income tax in just one state or splitting it amongst multiple states?

Yes, I know, I need to get the final answer from my accountant. But I figured I would ask on here before I talk to my accountant the next time to see what people in my industry have been doing...in turn, warning other business owners about an issue they might not be aware of.

 

[zdas04]

For me the issue has been sales tax rather than income tax. Any work I do in New Mexico is subject to 7.125% sales tax. Many states don't tax services, but some (like mine) do. Work I do outside New Mexico is not subject to New Mexico Sales Tax. I set up categories in Quicken like "Consulting New Mexico", "Consulting Colorado", "Consulting non licensed", and "Consulting International" (which I have to report separately to my insurance company). Then I'm really careful to put any revenue into the proper account. Makes paying sales tax a breeze. I've checked on the other states I work in about income tax and all of them say that state income tax only applies if you have an in-state business or residential address. I don't know if that is universal, but 100% of the states I've checked with (5 states, but one of them doesn't have state income tax) has had that same rule.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. ùGalileo Galilei, Italian Physicist

 

[SteelPE]

I had a similar issue when I started out, however, I only do work in 3 states (mostly 2). I asked my accountant the first time I went in to have my taxes done and she said that you didn't need to keep track. I don't remember what her excuse was but I haven't kept track since. However, if needed, I could easily go back and figure out which state collected money from on a projects because I don't really do many projects during the year (maybe 30-40).

 

[greenone]

It may also depend on whether or not you physically go to the state-say, to inspect the work, or for a meeting.