Multi-state taxes

[Unregistered]

Does anyone have expereince with businesses crossing state lines?

I have a client (Michigan based S-Corp) that sets up sales contracts with pharmacies in Michigan, Ohio and Indiana. He has 3 employees in Michigan, 1 in Ohio and 1 in Indiana--all are sales reps. His income--which is the only source of S-Corp income--comes from one company in Michigan. So, for example, he and his employees meet with pharmacy owners in MI, OH and IN. When those pharmacy owners sign a contract to purchase their supplies from Johnson & Johnson, my client sends that information to J&J (in Michigan) and they pay him a %. J&J deals directly with the pharmacy owner--my client handles no inventory.

So, for sure, the S-Corp is subject to MI business taxes, but what about IN and OH?

[Snaggletooth]

Payroll in 3 states

I believe you have multi-state filing. If all employees were Michigan based and had IN and OH in some kind of sales territory, you MIGHT escape with only MI filing. But even that would be doubtful depending on the nature of destination sales.

You've got an Indiana citizen and Ohio citizen out there knocking on doors, and they're on the payroll. I believe this is a dead-ringer for multi-state filing.

[BOB W]

Interstate business

Many states allow business to be transacted without having to file a return in that state. But if an office is maintained in that state then a return needs to filed as a foriegn corp. Some states have different requirement, be sure to check each of the states' requirements.

[OldJack]

I have a client (Michigan based S-Corp) that sets up sales contracts with pharmacies in Michigan, Ohio and Indiana. He has 3 employees in Michigan, 1 in Ohio and 1 in Indiana--all are sales reps. His income--which is the only source of S-Corp income--comes from one company in Michigan.

Well... are the "sales reps" in Ohio and Indiana really employees or is he treating them as independent contractors with 1099. If they are truly contractors he may not have nexus in those states and might not have to register, file, or pay income taxes to those states.

[BOB W]

1099- W-2

I'm not sure if it matters how they get paid, 1099 or W-2, as to whether the Corp is required to file as a foreign Corp in those states. Nexus is the primary issue.

If the employees get paid on a W-2 for their state of residence, registration with withholding tax unit for those states would be required. Chances are they are being paid on 1099.

[Unregistered]

They are W-2

He actually has them on payroll and pays withholding and suta to IN and OH. The Indiania employee lives in Indiana and files a 1040 there, including the income from the S-Corp. I think the Ohio employee is the same. I don't know if they have home or any kind of offices in their respective states, but I don't think so. Actually, I think that their territories cross state lines.

I'll check on the foreign corporation regualtions in those states.

Thanks for your help.

[BOB W]

.[/QUOTE]The Indiania employee lives in Indiana and files a 1040 there, including the income from the S-Corp. .[/QUOTE]

Is the IN employee also an owner in the S Corp? Not that it matters, I'm just trying to follow your thread.

[S T]

Nexus

Had a taste of this in California.

Nevada Corp, operating in Calif, Nevada, Oregon, Utah, Washington, etc.

Most states have an apportionment schedule. Usually based on sales, payroll or real estate owned in the states.

It is not an easy task as you have to complete each states form and separate the needed information.

Matt Sova addressed this issue on the "other board" about 2 years ago. Maybe he will see this post and provide more info I think he is in Michigan.

Sandy

[BOB W]

Found this for OH

http://tax.ohio.gov/divisions/communications/information_releases/CAT2005-02.stm

[Unregistered]

Bob W thanks for your help

The Ohio link was useful.

This idea of "nexus" is fairly new to me as I've not dealt with companies that do business outside of Michigan. It appears that the S-Corp has nexus in Ohio, and assuming a similar definition, he'll probably have nexus in Indiana as well.

This could work to his advantage or disadvantage--depending on the tax rates in those states. Michigan's SBT (soon to become MBT) is fairly complex. I'm a one-man show and I'm not sure I'm ready (or have the time) to learn two other state's corporate tax rules. I may have to let this client go.

I was unclear in my previous post about the Indiana employee. He is not an owner of the S-Corp. I meant to say that his only income comes the wages that he receives from the S-Corp (reported on W-2). The Indiana employee files a 1040 and a personal tax return in Indiana. I think the Ohio employee is the same in his state.

I appreciate everyone's helpful advice.

[BOB W]

Ohio

Ohio seemed to imply that if the employee is W-2 as opposed to a 1099, the w-2 in excess of $50,000 would creat nexus. A 1099 seems to not create nexus, atleast on that issue.