united-states, taxes, mobile-apps, new-hampshire, massachusettsMy business is currently incorporated in New Hampshire, but we may open an office in Massachusetts. We develop mobile apps and all of our revenue comes from online through the app store. What taxes would we be liable for in Massachusetts? Would we have to pay an income or business tax, or just taxes related to the property (which would be rented)?
Your liability in Massachusetts is not just determined by whether you use property there, but also whether you hire employees there, or even work regularly from there.
Generally, before one of these events occurs, you will have to officially register as a business in the additional state. If you are a corporation this will mean registering as a foreign corporation, but even if you’re an LLC or sole proprietor you may have to at least register the business name. Your tax liability will be not just property taxes but sales tax, income, and other franchise taxes. Besides tax liability, you should watch out for additional insurance requirements (e.g. do you need to buy workmen’s compensation in the new state?).
Once you’re qualified to do business in multiple states, you must apportion your income among the various states correctly. This usually comes down to using a formula from UDITPA, the Uniform Division of Income for Tax Purposes Act. The formula exists but your accounting may become complicated.
To the best of my understanding, you will need to pay all the taxes associated with the sates your business resides in. So while your income is coming from multiple places for both New Hampshire and eventually Massachusetts you will need to report the income each office brought in for that state and process accordingly.
Also opening an office in another state usually requires you to file your business as a foreign entity granting you the ability to do business in that state and allowing the state to collect taxes.
The advice given by user2844240 and Laxiton6893i is basically correct. Most states apportion based on 3 factors: sales within the state, property located in the state and compensation (wages, commissions, etc) paid in state as a percentage of each total. Then usually those percentages are averaged. However, a bigger issue is sales tax. That tax is based on nexus. http://blog.taxjar.com/internet-sales-tax-nexus/ Each state defines nexus differently. Not all states pursue sales tax collection aggressively. However, I live in Tennessee. Tennessee leads the nation in aggressively pursuing sales tax collection. Failure to pay sales tax can be very expensive. Even if you fail to collect sales tax from your customer, you are still liable for it. Then, if you have to pay, it comes out of your pocket. Get advice on your particular potential sales tax liability so you are not caught by surprise.
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