Multistate Tax Services: Nexus, Apportionment & 50-State Filing, Handled

Nexus is the connection that gives a state the right to tax. It comes in two forms. Physical nexus is created by an office, employees, inventory, owned or rented property, or traveling staff in the state. Economic nexus is created by sales volume alone, with no physical footprint at all – the rule the Supreme Court opened up in South Dakota v. Wayfair in 2018.

Since Wayfair, most states set the economic nexus threshold at $100,000 in sales or 200 separate transactions in a year. The exceptions matter: a handful of large states use higher, revenue-only thresholds – New York, Texas, and California, for example, sit at $500,000, and New York pairs that with a 100-transaction test. Measurement periods differ too, from the current calendar year to a trailing twelve months, so a client can cross a threshold mid-year and owe from that point forward.

Income and franchise tax nexus follows a separate track. Factor-presence standards let a state assert income tax nexus once a property, payroll, or sales factor crosses a stated dollar amount, and the protection under P.L. 86-272 for sellers of tangible goods has narrowed sharply as states reinterpret online activity as unprotected. A remote employee working from a state can create nexus by themselves.

We track each client's footprint against current thresholds, flag where exposure is building, and prepare the data behind every conclusion. The final nexus call stays with you; the analysis and documentation come from us.

Once a business has nexus in several states, its income has to be divided among them. States do this with apportionment factors – ratios of in-state activity to everywhere activity for sales, property, and payroll.

Single-sales-factor vs. three-factor

The historic standard was an equally weighted three-factor formula (property, payroll, and sales). Most states have moved to a single-sales-factor formula, which apportions on sales alone, while others use a sales-weighted three-factor blend. Two states with the same income can assign very different shares depending on which formula and weighting they require.

Market-based vs. cost-of-performance sourcing

For services and intangibles, the sales factor turns on where the receipt is sourced. Market-based sourcing assigns the sale to where the customer receives the benefit; cost-of-performance sourcing assigns it to where the work was done. The same invoice can land in different states depending on the rule, which is why service businesses see the widest swings.

Throwback and throwout rules

When a sale is shipped into a state where the seller is not taxable, throwback rules pull that sale back into the origin state's numerator and throwout rules remove it from the denominator. Miss one and the sales factor – and the tax – is wrong. We build each factor from source data, apply the correct sourcing per state, and document the treatment so a reviewer can follow it.

A pass-through entity tax (PTET) election lets a partnership or S corporation pay state income tax at the entity level instead of passing it through to the owners' individual returns. Because the entity deducts that state tax as a business expense federally, the deduction is not limited by the federal cap on individual state and local tax deductions.

That cap is the reason PTET exists. The federal SALT deduction cap sits at $40,000 for 2025 under the One Big Beautiful Bill Act, with a phase-down for higher incomes – well short of what many owners pay in state tax. A PTET election moves that liability to the entity, restores the federal deduction, and gives the owner a credit on their state return for the tax the entity already paid.

Most states with an income tax now offer a PTET election, but the mechanics vary: some require a binding annual election by a set date, some require estimated payments to lock it in, and the owner-level credit has to reconcile exactly with the entity-level payment. A missed election deadline cannot be undone, and an entity payment that does not match the credit claimed triggers state notices.

We prepare the election, the entity-level PTET return, and the owner-level credit together so the two sides tie out, and we coordinate the election with composite and withholding filings so owners are not taxed twice. The state PTET work plugs directly into the underlying partnership and S-corp returns we already handle. Done right across an owner group, PTET is often the largest single multistate tax saving available.

Composite returns let an entity file and pay state tax on behalf of its nonresident owners, so each owner does not have to file individually in every state where the business operates. The tax is paid at the individual rate and the owners are covered. Nonresident withholding is the alternative some states require: the entity withholds and remits tax on each nonresident owner's distributive share, and the owner files to reconcile.

Composite returns, withholding, and PTET interact, and the right choice differs state by state and owner by owner. In some states, an owner who joins a PTET election is excluded from the composite return; in others the two stack. Choosing wrong leaves an owner double-taxed or under-withheld. We map the better option per owner group rather than defaulting every state to the same treatment.

When a nexus review surfaces past-due exposure – a state where filing should have started years ago – a voluntary disclosure agreement (VDA) is usually the cleanest fix. A VDA limits the lookback period and typically waives penalties in exchange for coming forward and filing. We prepare the exposure analysis and the supporting filings so the cleanup is controlled rather than discovered in an audit. All of this runs inside SOC 2 aligned, role-based security, and it sits across the wider tax preparation services our teams deliver.