Effective November 2014, Pennsylvania (PA) joined the Multistate Tax Commission (MTC) joint income tax audit program for corporate net income (CNI) and capital stock/franchise taxes. The MTC serves as an operating arm for 24 states which participate in its Income Tax Audit program. What does this mean to PA businesses? It emphasizes the need for business owners to engage an experienced tax professional not only for tax preparation, but also for tax planning. How a PA company conducts its business operations can mean that it has nexus in states outside of PA. “Nexus” is the contact a company has in a state that subjects the company to another state’s taxes. The activity (sales solicitation, delivery, maintenance, trade shows, etc.) your company is conducting in another state, or if you have employees who work from home in a state other than PA, can result in your company being subject to another state’s taxes. Accordingly, it is a good idea to annually review your company’s activities with your tax professional to determine if you have established nexus in another state. Since PA is now a participating state in the MTC, a group of states that pools its audit resources to select candidates for corporate tax audits, the likelihood of being taxed in states outside of PA will likely increase. In other words, if your business is audited by the PA Department of Revenue (DOR) for CNI or capital stock/franchise taxes, PA will notify the other states in the MTC if it finds that you are doing business outside of PA. Likewise when a member state conducts its audits, the other member states will be notified if it is found that your PA company is doing business outside of PA. If your business is found to be operating in another state for which no tax returns have been filed, there is no statute of limitations. This means that you can be assessed for taxes, interest and penalties from the date you are found to be doing business through the date of the audit examination. If your business is operating outside of its home state, it is prudent to file all required tax returns. While your tax preparation compliance cost will increase, that cost is minimal compared to the cost of an audit and the unwelcomed tax assessment notice that could conceivably be for decades of unfiled tax returns. If fiduciary taxes are involved such as sales and payroll taxes, the officers, shareholders and other responsible persons could be personally liable for these taxes. To learn more about nexus, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation with an experienced tax professional. You can also schedule a consultation at Click Here.
