Here is a common mistake I see business owners making: they assume they are not a multi-state business unless they have offices in other states.
In reality, that is rarely what triggers multi-state exposure.
Most businesses become multi-state much more quietly than that. Sometimes it starts with hiring an employee who lives in another state. Other times it starts when an owner moves, when the business registers in another state, or when the company picks up a big new client in a new state.
The point is this: being multi-state is often broader, and less obvious, than most business owners think. And that’s what “multi-state” really means — not that you’re a giant corporation with offices everywhere, but simply that your business activity has crossed state lines in a way that creates a tax obligation.
In this post I’ll start by defining what being a multi-state company really means. Second, I’ll discuss why its important. Third, I’ll cover 5 common ways that businesses become a multi-state business. Finally, I’ll provide some tips on what you can do next.
What Does “Multi-State Actually Mean?
The technical term that defines a multi-state business is nexus. Nexus is the legal threshold at which a state says, “you’re doing enough business here that you owe us a tax return.” Every state sets its own rules for what creates nexus, which is part of what makes this so tricky. But in general, nexus gets triggered in one of two ways:
1) having a physical presence in a state (an employee, an office, or regular business travel there), or
2) having an economic presence (hitting a certain revenue threshold in that state).
Cross either line, even without realizing it, and you likely have become a multi-state business.
Why Does Any of This Matter?
If you have nexus in a state and aren’t filing there, you’re not just missing a paperwork deadline — you’re potentially accumulating back taxes, interest, and penalties that can become expensive.
To compound this, states are getting increasingly sophisticated at identifying businesses that should be filing and aren’t. Many are using technology to find multi-state businesses, while others are participating in information-sharing programs with other states and the IRS.
The good news: if you get ahead of it, most states offer voluntary disclosure programs that allow businesses to come into compliance with reduced or waived penalties. Being proactive almost always produces a better outcome than waiting to be found.
5 Common Ways Businesses Become Multi-State Businesses
- You have remote employees or contractors in other states.
This is one of the most common — and most overlooked — triggers. The moment you hire someone working from home in another state, that state may consider your business to have a physical presence there. It doesn’t matter that you’ve never set foot there yourself. In the eyes of that state, an employee’s home is your place of business.
Example: A company in Lancaster, PA hires a project manager who works remotely from North Carolina. That hire alone may create a North Carolina tax filing obligation. - You or your team travel to clients, or jobs, in other states.
It is not uncommon to occasionally visit clients at their offices, or to perform work on job sites in other states. Depending on the state, even a handful of trips per year can be enough to establish nexus.
Example: A company with one office in Pennsylvania sends team members to a client’s New York office three or four times a year for projects. New York may consider that sufficient to create a filing obligation. - You’ve crossed an economic threshold in another state.
Even if you’ve never set foot in a state, you may still owe taxes there. Since a landmark 2018 Supreme Court ruling (South Dakota v. Wayfair), states have been allowed to require businesses to file based purely on economic activity — no physical presence required. Most states now have some form of economic nexus threshold (often around $100,000), however for some states even $1 of revenue is enough to create a filing obligation.
Example: A company in Pennsylvania generates $800,000 in revenue from their California clients. California will now require a return — even if no one from the company has ever set foot in California. - You registered to do business in another state.
If you’ve ever filed paperwork to formally register your business in another state — even just to fulfill a client contract requirement — that registration can create nexus. - You have some other form of physical presence in another state.
This one catches people off guard in less obvious ways. Storing equipment at a client’s facility, using an Amazon warehouse for drop-shipping inventory, using a co-working space regularly, having business mail sent to an address in another state, or even attending a trade show in another state can potentially create nexus.
What To Do Next?
If any of the above scenarios sounded familiar, here are three steps to take right now:
- Map Out Your Activity – List every state where you have employees, contractors, clients you visit, job sites, or significant revenue. That’s your starting point.
- Talk With a Tax Pro – Bring that list to your tax advisor and ask specifically about nexus. The rules vary significantly by state, and a good advisor will help you understand where you have real exposure — and where you don’t.
- Don’t Wait – The longer a filing obligation goes un-addressed, the more expensive it becomes to resolve. If you’re unsure whether multi-state obligations apply to you, now is the time to find out — not after a notice shows up in your mailbox.
Multi-state compliance isn’t just a problem for “big-companies;” today all businesses are affected by it. If your business has grown, added remote team members, or expanded its client base across state lines, there’s a real chance this applies to you. The businesses that get this right aren’t doing anything complicated — they’re just being proactive.
Have questions about your specific situation? That’s exactly what I’m here for. Reach out today and let’s take a look together.
