A business owner asks: If I have an LLC in Michigan but sell my product in North Carolina, do I have to file a tax return in North Carolina? If so, what type?
That’s a great question, in fact it touches on one of the questions in state and local taxation today – do I have nexus with a state and if so, what kind of return do I need to file there.
What is Nexus?
Nexus is basically a measure of the connection your business has with a state. For example, if you have a store physically located in a state, then you are generally going to be subject to all kinds of taxes there (income, franchise, sales and use, property, etc.) However, today companies can easily make sales to people in other states without actually being present in the state.
So your question as to if you have to file a return in North Carolina depends on the extent of your business connection with the state, since I assume that you are not physically present there. Depending on your individual circumstance, you might be required to file income tax, franchise tax, sales and/or use tax, and perhaps a few others. Different levels of connection trigger the requirement to file for different types of taxes (so for example, you can have a use tax requirement but not an income tax requirement).
A good rule of thumb is that if you direct any kind of business activity into the state (salesmen, marketing, etc.) or have any physical presence there, you might have a filing requirement. Some states will subject you to tax if you simply exceed a certain level of sales in the state, regardless of your other connections.
This is a very fact-intensive area, and without looking at your specific facts, it is impossible to determine what kind of filing requirement you might have. A good place to start researching your potential exposure is North Carolina Revenue’s website. There you will find resources that can help you walk through what kind of returns you might have to file.
You can also call them and give them some of your facts. They may be able to help you determine what you should be filing.
Are you unsure whether your company has a nexus issue? If so, we can assist you in identifying states where a potential nexus may exist for your business. Contact Joseph Popp, JD, LLM at 330-339-6651, or click here to email Joseph. After a brief consultation he can assess your situation and determine the best way to proceed.