BW Online | April 25, 2001 | Render unto New Jersey?

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APRIL 25, 2001

TAX ADVISER

Render unto New Jersey?
Out-of-state clients don't always mean that an entrepreneur is liable for out-of-state taxes

Render unto New Jersey?^Out-of-state clients don't always mean that an entrepreneur is liable for out-of-state taxes^^Out-of-state clients don't always mean that an entrepreneur is liable for out-of-state taxes^Render unto New Jersey?

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Q: We're a consulting firm with a single office, in Vermont, but with a practice that extends across several states. Virtually all of our work, with the exception of short client meetings, is done in our home office. Recently, we received a letter from the State of New Jersey indicating that since we had completed projects for clients there, we're required to file tax returns there for those past years. Are we likely liable for service taxes in New Jersey? Which other states tax services in this way?

A: In determining whether a corporation is "doing business" in another state, you would have to look at the rules governing each state. The commerce clause of the U.S. Constitution limits each state's ability to tax activities outside of its boundaries. In the case of New Jersey, consideration is given to the following factors: the nature and extent of the activities of the corporation in New Jersey, the location of its offices, and the continuity, frequency and regularity of the activities of the corporation in that state. The employment in New Jersey of agents, officers, and employees also is a factor, as is the location of the actual seat of management or control.

According to the information you provided concerning your consulting firm, the short client meetings in New Jersey would not constitute "doing business" in the state and, therefore, you would not owe any tax. In regards to other states, you would need to contact each one individually.

Lawrence N. Frankel, CPA
Frankel and Topche, P.C.
West Orange, N.J.

Editor's note: While the information in Tax Adviser represents the opinion of an expert, it is not legally binding.

By Theresa Forsman in New York

Do you have a small-business tax question? Tax professionals will answer your questions in the Tax Adviser column, appearing here Wednesdays. E-mail Taxadviser@businessweek.com. We will not print your name, address or phone number, but please provide this information.