One of the most common questions we receive from business owners and executives—especially those expanding operations beyond Texas—is: “Does my company need to file a state tax return?”
For many Texas-based businesses, it’s easy to assume that operating in a state with no personal income tax means fewer filing requirements. While Texas offers a favorable tax environment for individuals, business entities often face more complex and wide-reaching obligations, particularly when growth introduces multi-state activities.
The Texas Advantage—and Its Limits
Texas remains one of the few states without a personal income tax, which benefits both business owners and employees. However, most entities operating in Texas may be subject to the Texas Franchise Tax (Margin Tax)—an entity-level tax based on revenue or margin rather than net income. Even small and mid-sized businesses, limited partnerships, and certain trusts may be subject to these rules, depending on their structure and annual revenue.
The Franchise Tax is often the starting point for understanding your state filing responsibilities. But for companies that operate across borders, this is only part of the story. As your business expands into other states, whether through physical operations or economic activity, it may incur additional tax filing responsibilities under the laws of those states.
Understanding Multi-State Business Obligations
State tax filing requirements are generally triggered when a business establishes nexus, which means it has a sufficient connection with another state. Nexus can be established in several ways:
- Physical Presence Nexus: Owning or leasing property, maintaining an office or warehouse, or employing staff in another state.
- Economic Presence Nexus: Generating revenue above a certain threshold (often $100,000 for income tax purposes) in a state, even without a physical location there.
- Affiliate or “Alter Ego” Nexus: Working with third-party affiliates or representatives who help establish or maintain a market for your business in another state.
- Ownership Interests: Being part of a partnership or S corporation that operates across multiple jurisdictions.
Even seemingly small activities—such as remote employees working in other states or selling through online marketplaces—can create filing obligations. Each state has its own set of rules, which are frequently updated, making compliance a constantly evolving target.
The Cost of Overlooking Compliance
When businesses fail to recognize or comply with multi-state filing obligations, the consequences can be severe. Common issues include:
- Accrued penalties and interest from late or missed filings.
- Increased scrutiny during audits, especially for businesses with out-of-state sales.
- Loss of eligibility for key deductions or credits.
- Administrative burdens tied to voluntary disclosure programs to correct prior-year errors.
Taking a proactive approach not only mitigates these risks but also helps identify opportunities to structure operations more efficiently.
How Calvetti Ferguson Supports Multi-State Businesses
At Calvetti Ferguson, our tax professionals work with growing businesses, private equity-backed firms, and established corporations to simplify state and local tax compliance. We provide:
- Nexus studies to pinpoint where your business has filing obligations.
- Income and franchise tax preparation tailored to each state’s requirements.
- Strategic planning to minimize exposure and identify potential tax savings.
- Ongoing monitoring of regulatory changes that may impact on your filing status.
We approach compliance as part of a broader strategy—helping businesses anticipate challenges, reduce administrative costs, and support growth with confidence.
Confidence Through Clarity
As your company expands across state lines, maintaining a clear and compliant tax strategy is critical. With the proper guidance, you can avoid unnecessary risks and focus on building your business.
Calvetti Ferguson brings together technical expertise, business insight, and a proactive mindset to help you stay compliant and uncover new opportunities—wherever you operate.
Contact Our Team
We partner with companies, private equity firms, and family offices to provide bespoke solutions to address their complex accounting, tax, risk, and advisory needs. Complete the form below, and a team member will contact you within one business day to discuss your specific needs.