Multi State filing requirements for a Small IT consulting company!

reddyprav · #1 (**permalink**) 03-05-2007, 11:03 AM

Dear Taxguru,

I have a New York State based IT Consulting C-Corporation and recently opened a small office in Maryland to service my Clients.

The revenue from this state is not more than 10% of the total revenue of my corporation and my CPA is urging me to file a Multi-State tax return and wants to charge me an extra $1,000 for the additional state.

My first question is it true that I have to file a Maryland Corporate tax return even if I have a small office and revenue is about $100,000 per year?

The second question, is it reasonable for the CPA to charge additional fees for the Maryland Corporate State return?

TaxGuru · #2 (**permalink**) 03-05-2007, 05:07 PM

Dear ReddyPrav,

By the way, you are considered a foreign corporation as far as Maryland is concerned and so you have to get permission from the Secretary of State for Maryland to do business in that State.

Unfortunately for you, by having a physical presence in the state of Maryland, you have created a nexus to that State. There are in general several factors that would result in your IT company to file a Franchise tax return for a state. Usually, the Sales factor is not sufficient enough to require you to file a Multi-State tax return, but a combination of sales with Payroll, and sales with a physical office usually is sufficient to require you to file a Multi-State tax return.

These are as follows:

1. Having Sales originate from MD.

2.Payment of Rent by having a physical office.
The physical assets, machinery and equipment and office furniture and computers all are includable in calculating the State Factor using in calculating State Taxes.

3. Having Payroll expenses
The payroll taxes withheld from the state automatically alerts the State that you have not filed for the Franchise tax return.

From the facts, it would appear that you would be required to file for Maryland State tax return.

Now, for the second question, is $1,000 for the additional State tax return reasonable! Now, as such in my practice, I would say generally, that is a fair amount and not unreasonable. Especially, if the CPA knows his Multi-State Practice tax rules, if however, he has little or no experience I would go somewhere else.

If he charges you only a few hundred dollars for the additional state, than also I would take my business elsewhere. The Multi-State Tax rules are complex and requires more skills than the traditional individual and corporate tax returns. so, in short, no harm in asking your CPA how much experience he has in this area, and based on his answer you can make your decision.

aliliaquat2912 · #3 (**permalink**) 06-03-2011, 12:26 PM

Quote:

Originally Posted by TaxGuru

Dear ReddyPrav,

By the way, you are considered a foreign corporation as far as Maryland is concerned and so you have to get permission from the Secretary of State for Maryland to do business in that State.

Unfortunately for you, by having a physical presence in the state of Maryland, you have created a nexus to that State. There are in general several factors that would result in your IT company to file a Franchise tax return for a state. Usually, the Sales factor is not sufficient enough to require you to file a Multi-State tax return, but a combination of sales with Payroll, and sales with a physical office usually is sufficient to require you to file a Multi-State tax return.

These are as follows:

1. Having Sales originate from MD.

2.Payment of Rent by having a physical office.
The physical assets, machinery and equipment and office furniture and computers all are includable in calculating the State Factor using in calculating State Taxes.

3. Having Payroll expenses
The payroll taxes withheld from the state automatically alerts the State that you have not filed for the Franchise tax return.

From the facts, it would appear that you would be required to file for Maryland State tax return.

Now, for the second question, is $1,000 for the additional State tax return reasonable! Now, as such in my practice, I would say generally, that is a fair amount and not unreasonable. Especially, if the CPA knows his Multi-State Practice tax rules, if however, he has little or no experience I would go somewhere else.

If he charges you only a few hundred dollars for the additional state, than also I would take my business elsewhere. The Multi-State Tax rules are complex and requires more skills than the traditional individual and corporate tax returns. so, in short, no harm in asking your CPA how much experience he has in this area, and based on his answer you can make your decision.

I am running a it solution company, and also planning to expand my business operations to Maryland. Thus, I am also curious. This means that every it consulting company that will operate in Maryland, will have to undergo this??