When it comes to U.S. tax compliance, it is important to take note that the entity needs to deal with taxes state to state. This means registering with a state once you have what is called “nexus” with the state, also referred to as “doing business”. Nexus-creating activities may include, but are not limited to:
a) Owning or using property in the state, including leased or mobile property
b) Presence of employees in the state for business purposes including telework
c) Making sales into the state
d) The generation of income from sources within the state without regard to whether there is a physical presence in the state
For example:
California: You are considered to be “doing business” if you meet any of the following:
- Engage in any transaction for the purpose of financial gain within California.
- Are organized or commercially domiciled in California
- Your California sales, property or payroll exceed the threshold or constitute 25% of the total amount. (sales – $637k, property and payroll – $63k)
Texas: A foreign taxable entity with no physical presence in Texas now has nexus if the gross receipts from business done in Texas are more than $500,000 or registered for a Texas use tax permit.
Nexus Impact
Each state also has different requirements once the business is deemed to have nexus within the states. Most of them would require the following if any:
a) Appointment of registered agent
b) Annual information filing for franchise tax
c) Licensing requirement
d) Withholding tax for payment out-of-the state
e) Sales and use tax filing
f) Corporate income tax filing – allocated and apportioned to individual states based on federal taxable income
Delaware Nexus impact
a) Delaware does not impose a sales tax, but it does have an annual business license requirement and it imposes a gross receipts tax on the seller of goods or provider of services.
b) Franchise Tax.
c) Corporate Income Tax filing with the Delaware Division of Revenue at a rate of 8.7% of federal taxable income allocated and apportioned to Delaware, based on an equally weighted three-factor method of apportionment.
d) Every employer maintaining an office or transacting business in Delaware who makes payment of wages or other remuneration to a resident or non-resident of this state, must deduct and withhold an amount substantially equivalent to the tax estimated to be due from the employee.