Hey business owners,

Ever feel lost in the maze of tax laws?

If you’ve ever caught yourself worrying about getting penalized by the IRS because you don’t understand nexus and state apportionment, you’re not alone.

Taxes can be confusing, especially when your business spans multiple states. But there's good news: it doesn't have to be so complicated.

This guide is here to simplify things for you.

We’ll break down what nexus is, how state apportionment works, and give you clear steps to stay compliant and avoid costly penalties.

What triggers taxes in other states: When and why you might owe taxes outside your home state.

How state apportionment works: The formulas states use to divide your income and how to use them to your advantage.

Steps to stay compliant: Practical advice on registering in states, filing tax returns, and tracking your business activities to avoid penalties.

So, let’s make sense of nexus and state apportionment and keep your business compliant, shall we?

Confused About Where You Owe Taxes?

You're not alone. Nexus is a term that makes people sweat. But it’s simpler than it sounds.

If your business has a presence in a state, you might owe taxes there. This presence can be physical, like an office or a warehouse, or even just making sales in that state.

Physical Nexus: If you have an office, store, or warehouse in a state.

Economic Nexus: If you meet certain revenue or transaction thresholds, even without a physical presence.

Imagine you run an online store from California. If you sell over $500,000 worth of goods in Texas, you might owe Texas sales tax, even if you’ve never set foot there.

Important: Each state has its own rules. Always check the specific thresholds.

Wondering How States Divide Your Income?

It’s all about how much business you do in each state.

States use different formulas. The most common ones are:

1. Sales Factor: Based only on sales in the state.

2. Property Factor: Based on property owned in the state.

3. Payroll Factor: Based on wages paid to employees in the state.

​4. Combination: A mix of the above.

Say your business earns $1,000,000, with $200,000 in sales in Texas and $800,000 in California.

​Using the Sales Factor, Texas might say “You made 20% of your sales here, so 20% of your income is taxable in Texas.”

Worried About Getting It Wrong?

Here are practical steps to help:

1. Track Where You do Business: Keep records of where you make sales, own property, and pay employees.

2. Register in Each State: Register in any state where you have nexus.

​3. File Appropriate Tax Returns: Fill out the correct state tax forms and submit them on time.

New York requires businesses to file Form CT-3 if they have nexus. If you sell there, make sure you fill out and submit this form.

Even with the best of intentions, mistakes can happen:

1. Ignoring Economic Nexus: Many think only physical presence counts. Economic nexus can be a hidden trap.

2. Forgetting To Register: If you don’t register in states where you have nexus, you can face fines.

​3. Not Keeping Up To Date: States can change their nexus rules. Stay informed to avoid surprises.

Understanding nexus and state apportionment can save you from hefty penalties.

It’s worth the time to learn the rules for each state where you do business.

By keeping good records, registering in each state, and filing the correct forms, you will stay compliant and keep your business running smoothly.

If you need help, Tax Tutor is here to guide you through each step.

​Don’t let tax laws scare you. We’ve got your back!