– Hiring a contract brewer in a different state may create new state income, franchise, and payroll tax obligations for the Massachusetts-based brewer.
– Even if the brewer sells beer in multiple states, they may not have had enough sales or activity to have to file income tax returns outside of Massachusetts.
– Contract brewing can help a brewery meet increased demand without immediate capital expenditures and create additional streams of income while evening out production schedules. 1. Sending employees to oversee production or perform quality control in a different state can create state tax obligations.
2. Ownership of property, such as raw ingredients, in a different state can also trigger state income tax filing obligations.
3. Steps to manage state tax nexus include transferring title of raw ingredients to the contractor, shipping any unused inventory back to the home state, and structuring the contract to allow for virtual oversight.
4. It may be worth considering managing the process without sending employees to a different state to avoid creating nexus.
5. The contract should be structured so the brewer does not take title to the final product in the other state and should consider shipping the finished product directly to customers. 1. Using an out-of-state contract brewer may create tax nexus in additional states for the brewer.
2. Many states require a taxpayer to file a return once they exceed a certain level of sales in that state.
3. It’s important for brewers to proactively address potential tax issues when working with out-of-state contract brewers.
Leave a Reply