Remote Teams, Real Taxes: What Small Businesses Need to Know About Nexus
Remote teams are great for talent and speed, but the tax rules didn’t go on vacation. If you manage payroll, sales, and clients across states, you’re already dealing with multi-state tax nexus for small businesses — and states are ramping up enforcement. Here’s how to stay compliant without wrecking cash flow or momentum.
1. Working From Anywhere Isn’t Tax-Free
What multi-state tax nexus for small businesses really means
Nexus is a state’s legal threshold to tax your business. You create nexus through physical presence (an employee, office, inventory), payroll, property, or by crossing economic thresholds in sales or transactions.
It’s not theoretical. A single remote employee in another state can trigger employer registration, income tax filing, and withholding obligations immediately. Their home office can be your presence.
Translation: before the offer letter goes out, confirm where that worker sits and what it means for registrations, payroll setup, and apportionment. You’ll avoid retroactive fixes and penalties.
2. Sales Tax: The Sticky, Common Trap
Post-Wayfair, most states use economic nexus thresholds (often $100,000 in sales or 200 transactions) to require sellers to register and collect sales tax. Thresholds and definitions vary, and some states dropped the transaction-count test.
Marketplace facilitator rules add complexity. Amazon or Etsy may collect and remit for marketplace sales, but your own site, wholesale, and invoiced services are on you. Mixing channels without tracking creates gaps.
Example: The $100k threshold surprise
A boutique hit $100k in shipped sales to State X by Q3. Because they didn’t register when they crossed the line, the state billed them for uncollected tax plus interest. They had to file retro returns, write a painful check, and update systems under deadline pressure.
- Action this week: measure state-by-state sales monthly, flag approaching thresholds, and register before you cross.
- Configure your tax engine to distinguish marketplace vs. direct sales so you only collect where required.
3. Payroll & Income Tax: The Hidden Exposure
Remote staff almost always create employer withholding and unemployment insurance obligations in their work state. Many states also view an employee as enough presence to impose corporate income or gross receipts tax filing.
Operationally, misfiled withholding can trigger penalties, stop-work orders, or employee headaches when W-2s show the wrong state. Fixing it midyear wastes time and erodes trust.
- Register for withholding and UI before first payroll in a new state.
- Set the employee’s work location and local tax codes accurately in payroll.
- Review apportionment: your sales/payroll/property factors may now include another state.
- Watch “convenience of the employer” rules in certain states that tax wages based on employer location.
4. Service & SaaS Businesses: Nexus Isn’t Just for Goods
Many service and SaaS companies assume no sales tax, no problem. Not true. States differ on whether SaaS, digital products, or specific services are taxable — and how revenue is sourced.
Market-based sourcing taxes services where the customer receives the benefit, while other states still use cost-of-performance. That affects both sales tax and income tax apportionment.
SaaS and services: sourced to your customer, not your server
Case point: an agency collected sales tax on services in one state because they were taxable, but missed payroll withholding in another because a contractor converted to an employee. The fix required registration in both states and updated invoicing rules.
5. Audit-Proofing Checklist (Do This Now)
You don’t need perfection; you need process. Build a clear, repeatable system and you’ll stay ahead of thresholds and notices.
- Map locations: employees, contractors, inventory, property, and top clients by state.
- Identify triggers: physical presence, payroll, property, and economic thresholds — by state.
- Centralize documentation: offer letters, remote-work policies, where work occurs, and exemption certificates.
- Register proactively where required; don’t wait for a notice.
- Automate tax calculation in billing/checkout and lock your tax codes.
- Set a quarterly review for multi-state tax nexus for small businesses, including threshold checks and apportionment.
- Track marketplace vs. direct sales, and store marketplace reports for audit support.
6. Short-Term Pricing & Cash-Flow Moves to Cover New Costs
Compliance costs money. Price to cover it and protect margins.
- Micro-adjust pricing 1–2% on new quotes and renewals; pair with value drivers (faster ship, priority support, premium packaging).
- Reclaim margin: negotiate freight and SaaS contracts, reduce payment processing costs, and trim low-ROI discounts.
- Create a tax reserve: forecast sales/use/payroll/income taxes monthly and park a percentage in a dedicated account.
How to explain price changes without a tax lecture
Keep it simple: “We’re standardizing compliance across states and investing in better service. Updated pricing ensures we meet those standards while delivering consistent value.” Then move on.
7. When to Disclose, Negotiate, or Fight an Assessment
Not every notice is a battle; not every assessment deserves a check. Use a cost-benefit lens.
- Voluntary disclosure agreements (VDAs): reduce penalties and limit lookback if you come forward before the state contacts you.
- Negotiated settlement: viable when liability is high but facts support a narrower exposure.
- Audit defense: push back when rules were misapplied or the state overreaches on nexus or sourcing.
Red flags to call a specialist
- Multi-state notices or requests for prior-period returns.
- Large retroactive amounts tied to economic nexus thresholds.
- Employee footprints across multiple states with mixed contractor/employee status.
- Conflicting advice on SaaS/service taxability or apportionment.
8. How JLW Helps — Practical Services That Stop Surprise Liabilities
You don’t need more complexity — you need a blueprint and execution. JLW runs the process so you stay focused on growth.
- Multi-state nexus assessments that map exposure across sales, payroll, property, and economic triggers.
- Payroll redesign and registrations so employees get paid right and you avoid penalties.
- Sales/use tax configuration, registrations, and filing cadence aligned to your systems.
- Ongoing nexus monitoring and quarterly reviews to catch changes early.
Real outcome, real cash saved
A growing SMB planned remote hires in three states. We restructured contracts, registered proactively, configured billing and payroll, and closed prior gaps through VDAs. Result: avoided a six-figure retro bill and stabilized cash flow.
Remote and hybrid work are permanent. Treat multi-state tax nexus for small businesses as an operating system — not an emergency. Build the process once, maintain it quarterly, and keep your team and cash moving in the right direction.