GYF has the privilege of serving clients across the country, giving our team a wealth of experience dealing with many tax jurisdictions. At our firm’s recent CPE Day, Mike Weber and Rebekah Flanders covered a wide range of state tax issues such as operating out-of-state, nexus, and state income and sales tax in their “Home Field Advantage – State Tax Update.”
It is no secret that different states across the country have different tax rates. Many taxpayers are familiar with the idea that Florida does not have an income tax, whereas, a state like California has an income tax rate that can eclipse 13% for certain taxpayers. The ability for each state to determine its own rules and regulations was given by the 10th Amendment of the United States Constitution, and since its ratification in 1791, countless tax laws have been enacted in each state, leading to complicated requirements and filings. Mike and Rebekah reviewed a variety of state tax issues, which are highlighted below.
Playing Out of State
When establishing a new venture, taxpayers should consider several key points. First, taxpayers should be aware of the states where they need to be registered. Many states will require a company to register for multiple types of taxes if they are providing services within the state. Certain taxpayers will need to register for different taxes based on the services they provide, such as the liquid fuels tax permit or cigarette dealer’s license. The PA-100 Enterprise Registration Form is one example of a state registration form, and it contains the option to register for a wide variety of taxes and services.
The next subject taxpayers must be aware of aware of is nexus. Nexus is typically determined by three standards: physical presence, economic presence, and factor-based nexus. States apply these three tests to determine whether a taxpayer will be required to file a tax return based on their level of activity. Some tests, such as the factor-based nexus standard, are a bright-line test based on gross receipts, wages, property, or a blend of all three. Other times, states will use the broader economic presence standard to collect income tax.
Nexus must be evaluated on a state-by-state basis, and a understanding of each states’ legislation is necessary to determine nexus. Taxpayers should be keenly aware of their out-of-state activity in order to avoid delinquency in every jurisdiction in which they operate. Nexus standards apply to a wide range of taxes, and different thresholds can trigger different types of tax. For example, a taxpayer registering for employee withholding tax may trigger income tax nexus, and a state may have different factor-based nexus thresholds for sales tax versus income tax or franchise tax.
When playing out-of-state, all good teams come prepared. Proper record-keeping is the best way in which a taxpayer can come to the big game ready to play. Taxpayers should document their interstate transactions, gross receipts, employee withholding, sales tax collection and more in order to be prepared for their state taxes.
Playing In State
All teams enjoy playing on their home field, and a taxpayer should maximize those advantages on their individual or business returns. Our home turf, the state of Pennsylvania, offers a wide variety of tax incentives and credits to help support and expand businesses and improve local communities. Credits such as the Research and Development (R&D) Credit and the Manufacturing Tax Credit are efforts from Pennsylvania to increase innovation and create new jobs. The Educational Improvement Tax Credit (EITC) serves to encourage donations to educational programs. Tax credits typically require applications throughout the year, and all taxpayers should be aware of the deadlines for each credit. GYF assists individuals and businessess through this process each year in order to maximize tax savings for our clients.
Another important topic for Pennsylvania taxpayers is the PA Annual Report Filing. Beginning in 2025 there is an additional annual filing that will be required for every domestic entity formed in Pennyslvania and all foreign entities doing business in the State. Taxpayers should contact tax professionals to ensure they are not delinquent on the new tax filing. Starting in 2027, failure to file the annual report can lead to administrative dissolution in the state of Pennsylvania.
Lastly, all Pennsylvania taxpayers should be aware of the PA Department of Revenue Portal, MyPath. MyPath is a tool taxpayers can use to process business registration, make electronic payments, respond to tax notices, and even file tax returns electronically. Utilizing MyPath can minimize processing times, and it is a great resource for all Pennsylvania taxpayers.
Post-Game Highlights
Every state has extensive tax regulations that can be difficult to understand. Good record-keeping and enlisting the advice of an experienced team of tax professionals is the best way for taxpayers to stay up-to-date on all of their tax filing requirements.
Click here to access copies of the slides, links to resources and a video of the presentation
About GYF’s CPE Day: The firm presents this program each year to bring together clients, friends of the firm, and other professionals who are interested in gaining knowledge. The day is always filled with interesting presentations and great networking opportunities, and is generally attended by 300+ guests. If you have any questions about the material covered, or other issues we did not have time to address, please reach out to your GYF Executive or contact the office at 412-338-9300. We look forward to seeing everyone next year!
