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State and local taxes: Key considerations when doing business outside your home state.

Clark Nuber Business Insights
| FROM THE PRINT EDITION |
 
 
As your business grows and you begin selling your products or services outside the state of Washington, you need to consider the tax implications. Other state and local governments are, of course, excited to have you selling to their residents and businesses. Each sale means the potential of added revenue to government coffers in the form of numerous taxes, including business taxes, such as income or franchise taxes; transaction taxes, such as sales and use taxes; and taxes associated with a mobile workforce, such as payroll taxes and personal income tax withholding. 
 
A business becomes subject to tax in another state when it establishes what’s known as “nexus.” Nexus refers to the level of activity that must occur within a state in order for the state or local government to have the authority to impose taxes on out-of-state business. Nexus standards vary from state to state and may depend on the nature of your activities in the state and the type of tax involved. 
 
Companies often make a critical mistake in thinking that an in-state employee is required in order for taxes to be due. While having an in-state employee does trigger state and local tax obligations, many taxes have a much lower nexus threshold. For sales taxes, nexus requires that the seller have some form of a physical presence in the taxing state. This includes having employees or independent contractors visit existing or potential customers and can extend beyond the obvious. In most states, attending or exhibiting at trade shows can create nexus. 
 
Physical presence often includes various forms of collaborative marketing agreements with in-state marketing partners. Businesses that make sales of products and services to end users need to be sensitive not only to nexus considerations, but also to whether their products and services are subject to tax in the customer’s state. Here the rules vary widely. 
 
Perhaps the biggest misconception about taxability is in the area of digital goods and services, such as SaaS and other cloud-based services. Companies with nexus that sell taxable products and services are liable for sales taxes they fail to collect. The key is to understand the various state rules so you don’t face a large, unexpected tax liability.  
 

Generally, a physical presence giving rise to a sales tax collection obligation will also subject the business to income or other business privilege taxes. So-called “economic nexus” laws are becoming increasingly popular in states that impose business privilege taxes. These laws provide that companies with sales volume above a certain threshold are required to pay business privilege taxes, regardless of whether any physical activity takes place in the taxing state. 

 
The good news is that federal law generally prohibits states from imposing net income taxes on out-of-state businesses that sell tangible personal property where the only activity in the taxing state is soliciting orders for sales. This federal law does not apply to business privilege taxes measured by gross income, gross margin or invested capital.
 
Like Washington, other states impose taxes on the employment relationship. Companies with out-of-state employees should expect to pay unemployment and workers’ compensation insurance premiums as well as withhold personal income tax. Moreover, companies with a mobile workforce may be required to withhold and remit personal income tax in states where employees travel.  
 
Income earned by employees while working in states with a personal income tax is usually taxable and the employer is required to withhold and remit the tax. The employees are then required to file nonresident income tax returns in the states where they travel to perform work. This is an issue even if employees are only in the state for a few days a year. Companies with a mobile workforce are advised to seek advice on how best to balance the burden of technical compliance with the potential exposure to tax, penalties and interest for failing to comply.
 
Bob Heller is a Tax Shareholder with Clark Nuber PS and leads the firm’s State & Local Tax Practice. Reach him at 425-635-7424 or BHeller@clarknuber.com. Learn more about Clark Nuber at www.clarknuber.com.

Economic Outlook: Gazing Beyond 2017

Economic Outlook: Gazing Beyond 2017

Crystal-ball predictions of what’s to come.
FROM THE PRINT EDITION |
 
 

The 5 W’s of the news industry
by Mónica Guzmán 

WHO: After years of existential struggle, lots of smallish media organizations (e.g., iterations of Nextdoor and neighborhood blogs) will have become essential to the Seattle communities they serve. You’ll identify with several of these communities — composed of people who live how you live, like what you like or want what you want — and you’ll know them as hubs that include you, not just outlets that inform you. 

WHAT: By 2035, almost everything you do will become somebody’s data, and artificial intelligence — those algorithms that already customize content — will churn out a version of a story just for you. Want knowledge that isn’t so nosy? You’ll probably need to pay more for it.

WHEN/WHERE: Smart objects such as driverless cars will tell you everything you need to know. But after key research findings on the perils of distraction and the benefits of in-person interaction, you’ll finally know when to turn them off and shut them up.

WHY: With information that’s so personalized and segregated, distinguishing what enlightens us from what only affirms our attitudes will be tough. Luckily, a new set of tools — and a new kind of journalism — will have evolved to lead us to information that our algorithms would have never found.  

MONICA GUZMAN is a columnist for The Seattle Times and cofounder of The Evergrey, a daily email newsletter about Seattle.

 

Imagine an ever-changing waterfront
by Charles Royer

James Corner, the lead designer for Seattle’s new waterfront, doesn’t believe it will ever be finished. He is not handing in a finished design at the end of his contract. 

He is designing a canvas that future generations will shape and reshape. He once said the idea for the waterfront is really that of a classic Pioneer Square loft: a large space that new generations of residents will change and reorganize to accommodate the needs, demands and trends of their own time. 

So Seattle’s new waterfront really is not about what it might look like. Sure, it will be green and open to the sky and the water and the mountains. And open to the crowds — the hustle and bustle of people at play or at rest or just passing through the big city. 

But it is more about how the waterfront will be used by succeeding generations: locals, newcomers and visitors, young and old, the fit and the not so fit, all seeking to contribute to the mix of activity in a place that encourages a changing use. 

Think of a lot less stressful noise and more happy noise. Music. Laughter. Even healthier fish and a cleaner Elliott Bay. 

I hope for what we have dreamed: a waterfront for all, to use as each person chooses.  

CHARLES ROYER, a former Seattle mayor, is cochair of Seattle’s Central Waterfront Committee.

 

Ferries on Lake Washington? It could happen — again
by Leslie Helm

Lake Washington is a magnificent community asset, but it’s a barrier where traffic is concerned. Michael Christ has a solution. He’d like to reintroduce passenger ferries, which graced the region’s waterways from the 1850s to the 1930s.

Christ, the CEO of Seco Development, is betting heavily on Renton’s Southport mixed-use waterfront development. He pictures slow-moving barge-like ferries transporting 150 to 175 people and countless bicycles at a time. A trip between Renton and Seattle’s South Lake Union might take an hour, he says, but there would be Wi-Fi and a chance to get some work done.

“It would be so much more beautiful than driving,” says Christ. “It would be romantic.” 

Skeptics — and there are plenty — say commuters prefer bus, light rail or car, adding that boats are expensive, and that there isn’t enough development along the lake to make the plan work. 

Christ calls them shortsighted. The boats he envisions are energy efficient and cheap (less than $5 million for three boats circling the lake) and would connect with other public transportation.

Maybe King County Executive Dow Constantine, who backed the popular water taxi between West Seattle and downtown, will go for a new “Lake Link.” Sound far-fetched? Maybe not. The county has considered reviving an idea, raised and quashed when the Great Recession hit, of testing two passenger-ferry routes to the University of Washington — one from Kenmore and the other from Kirkland.

As Christ points out, big growth is projected for cities all around the lake. “You’re going to have 5 million people living around this lake,” he notes. “It’s just a question of time before this happens.” 

LESLIE HELM is the executive editor of Seattle Business magazine.