By: Mia Reynolds

Why Multi-State Taxes Are More Complicated Than Most People Realize

As remote work grows, businesses expand across state lines, and individuals move more frequently, multi-state tax filings have become increasingly common. Each state has its own rules about residency, income sourcing, business operations, and what constitutes taxable activity. Many taxpayers unknowingly trigger tax obligations in multiple states and only discover the issue when they receive notices or penalties.

Understanding when to seek expert help can prevent costly mistakes and help ensure compliance across all states involved.

Understanding State Residency Rules

Residency determines which state has the right to tax your income. However, residency rules differ by state and may be based on:

• Where you live primarily

• Where you work

• Where you spend more than 183 days

• Where you maintain a home

• Where your family resides

• Driver’s license location

• Voter registration

• Mailing address

• Financial account location

Some states consider you a resident even if you only maintain a home there but work elsewhere. If you have ties to more than one state, you should seek tax guidance to avoid double taxation.

Income Earned Across Multiple States

If you worked in more than one state or performed services while traveling, your income may need to be allocated between states. Each state has its own method for apportioning:

• Wages

• Self-employment income

• Business income

• Commissions

• Digital earnings

• Gig work

• Freelance projects

Without proper allocation, you risk overpaying or underpaying state taxes.

Remote Work Complications

Many people now work for companies located in states where they do not live. This raises questions such as:

• Which state taxes my income?

• Which state gets withholding?

• Do I owe taxes to both states?

• Does my employer need to register in my state?

• Do temporary trips create a tax requirement?

States have specific remote work rules that can be confusing without professional help. A tax advisor ensures that withholding and reporting are handled correctly.

Owning Real Estate in Multiple States

Real estate creates tax obligations that vary by state. You may owe taxes in states where you:

• Own rental property

• Earn short-term rental income

• Sell real estate

• Receive passive income through partnerships

Each state taxes rental income differently, and short-term rental rules vary widely. Proper classification, depreciation, and filing ensure compliance.

Operating a Business With Multi-State Activity

Business owners often trigger multi-state tax obligations without realizing it. You may need help if your business:

• Has employees in other states

• Works with contractors across state lines

• Stores inventory in another state

• Runs ads targeting specific states

• Ships products to multiple states

• Has remote workers

• Uses third-party fulfillment services

• Generates revenue from other states

These activities may create a nexus, meaning your business is legally required to file in that state. Failing to file can lead to penalties, interest, and forced compliance reviews.

Understanding Business Nexus Rules

Nexus determines whether a state has the right to tax a business. Nexus can be created through:

• Physical presence

• Economic activity

• Sales thresholds

• Employees

• Affiliate relationships

• Digital activity

Even online businesses can create a nexus simply by meeting sales volume thresholds. A tax advisor reviews your activity and determines where filings are required.

Pass-Through Business Complications

S corporations, partnerships, and LLCs taxed as partnerships often create multi-state tax exposure for owners. Income flows through to your personal return and must be allocated across states where:

• Sales occur

• Employees work

• Property is held

• Clients live

Proper apportionment prevents double taxation and ensures fairness.

Moving Mid-Year

If you moved to another state in the middle of the year, you may need to file part-year returns in both states. This requires:

• Allocating income

• Adjusting withholding

• Reviewing tax credits

• Understanding reciprocity agreements

Moving is one of the most common situations where people accidentally overpay or underpay taxes.

Short-Term Rentals Across States

Short-term rental income is taxed differently depending on the state. Requirements vary in:

• Occupancy tax

• Sales tax

• Licensing rules

• Depreciation

• Material participation

• Classification for federal tax purposes

If you operate rentals in more than one state, multi-state tax help becomes essential.

Common Problems Without Professional Guidance

Multi-state taxpayers often face:

• Double taxation

• Incorrect withholding

• Unreported income in other states

• Penalty notices

• Amended return requirements

• Conflicts between residency and domicile

• Misapplied credits

• Missed deductions

• Incorrect apportionment

These problems can snowball quickly because states share information with the IRS.

Documenting Multi-State Activity

To remain compliant, you need clear records of:

• Where you worked

• Where you lived

• Days spent in each state

• Contracts

• Invoices

• Travel records

• Rental income

• Business receipts

• Withholding statements

Proper documentation supports your filing position and prevents disputes.

How AE Tax Advisors Helps With Multi-State Tax Issues

AE Tax Advisors helps clients navigate multi-state tax complexities through:

• Residency analysis

• Income allocation

• Nexus determination

• Business apportionment

• Short-term rental classification

• Payroll adjustments

• State tax credit reviews

• Multi-state business filings

• Amended return support

The firm builds a strategy tailored to your activity in each state to help ensure accuracy and compliance.

Final Thoughts

Multi-state taxes are often more complicated than taxpayers expect. Income earned across state lines, remote work arrangements, real estate ownership, and business operations can all trigger filing requirements. With proper guidance, you can avoid double taxation, stay compliant, and reduce your overall tax burden. For high-income individuals who want a strategic partner steering their tax planning, more information is available at AETaxAdvisors.com.

Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as tax advice. Each individual’s tax situation is unique, and it is recommended to consult with a qualified tax professional or AE Tax Advisors for personalized guidance based on your specific circumstances.