Law Stack Exchange is a question and answer site for legal professionals, students, and others with experience or interest in law. It only takes a minute to sign up.
Sign up to join this community
I initially plan to conduct business without any incorporation. That is, I plan to report my business revenues as personal income on the 1040 and file a Schedule C-EZ (or Schedule C, depending on how much I make). I have done this before for in-person tutoring before, so I am familiar with the process.
I was wondering, if I choose to take on clients in other states or countries than my state of residence Washington State, do I have to pay income/revenue taxes to those other jurisdictions?
I assume you've worked through the section on Washington's B&O tax to determine whether you're subject to that tax, esp. the "service and other business activities" tax under WAC 458-20-224. The issue could potentially come up for Hawaii, New Mexico, South Dakota and Delaware. In SD, there is a 4.5% tax on enumerated services most of which cannot be provided except in person, but it also includes
membership or entrance fees for the use of a facility or for the right to purchase tangible personal property, any product transferred electronically, or services
Sec. 10-45-4 imposes
a tax at the same rate as that imposed upon sales of tangible personal property in this state upon the gross receipts of any person from the engaging or continuing in the practice of any business in which a service is rendered
and that state rate is currently 4.5% (there are also municipal taxes). Because of South Dakota v. Wayfair, your sales to SD customers could be taxed. The relevant issue is whether there is a "substantial nexus" with that state, as required by Complete Auto v. Brady. The SD law defines the threshold for that level of business as $100,000 of 200 transactions, annually. It is likely that your business will remain "under the radar", but the court was not explicit about how low the radar can go.
