For many construction and retail businesses, the prospect of expanding through out of state activities poses a glimmering opportunity. But take time to research. Out of state business adds a number of complex challenges.
Employment: Most states outside of Texas have a state income tax. Be aware that if you employ others with an address in that state, you will likely be required to register in that state, file regular unemployment and income tax returns. Regardless if you have a physical presence in that state, income tax is based upon the employees state of residency.
Secretary of State Registration: If you conduct business in another state you will need to register with the Secretary of State. This may have a registration fee and will likely create the need for a local address for a registered agent. This will require the service of a registration service for an added fee. As a registered business, you will need to file annual or periodic informational reports.
License: Separate from the business registration, your profession may be licensed in a particular state. The license requirements can be a simple form to a complete exam, bond and financial audit. Licenses may have an ongoing continuing education requirement and most require some form of renewal.
Income Tax: As a business in the state, you may be subject to corporate income tax filings in that state. Don’t underestimate the cost of business taxes in a state. An added cost of 3% to 5% can change the profitability picture quickly.
Sales Tax: Along with Corporate income tax, remember to research the sales tax regulations. With state in a fiscal crisis, they are happy to audit and chase after missed sales tax revenue. Sales tax requires ongoing regular reporting, even if you do not have ongoing business. Furthermore, there can be city, county and other sales tax entities in a given state. Louisiana for example, requires separate filing directly with each tax authority: state, parish, city and education board.
Expanding into another state can create great growth opportunity, but be mindful of also setting in place solid administrative processes to keep track of all the added reporting and costs.