As we help our clients with year-end planning, we evaluate their activity in multiple states and assist them in determining whether current year state income tax returns will need to be filed. We carefully review the activity a business has had in the various states with a focus on traveling sales individuals, the level of sales into each state and the provision of services. Each of these will determine if nexus has been created and whether the filing of a return is necessary.
In some instances, a company may have had activity in a state several years ago which required registration at the Secretary of State level or with the Department of Revenue. Since then, a company's activities may have been discontinued due to a variety of business changes or lack of contracts. Unfortunately, even if there is no activity in a state, mere registration may lead to a filing requirement. Additionally, there may be a minimum tax due with the return.
In order to minimize filing requirements and the payment of minimum taxes, a company should consider withdrawing from states where their business activities have ceased and no future activity is anticipated. Of course, there could be good reasons to stay registered, such as maintaining a contractor's license or complying with sales tax statute of limitations requirements, but withdrawing is often something that hasn't been considered.
By reviewing your company's state registrations and withdrawing as needed before the end of the year, it may be possible to avoid having a filing or tax payment due for calendar year 2012.
If you have any questions about this process or state taxes in general, please contact Chris Laine, Director of State and Local Tax at 425-289-7609 or firstname.lastname@example.org.