Which US states can tax your company

Checked against the sources on 14 November 2026.

Federal tax is the same wherever a US company sits. State tax is not. Each state decides for itself when a company from outside has enough of a connection to be taxed. State tax law calls that connection nexus.

The state where the company was formed

A Delaware corporation files an annual report and pays franchise tax in Delaware by 1 March every year. That holds even if it has never done business there.¹

States where the company does business

A state taxes the income of a company that does business in it, and each state writes its own test. California’s is worth knowing because it is published in figures.

A company is doing business in California if it enters into any transaction there for financial gain, or is organised or commercially domiciled there. It is also doing business if it passes any one of these limits in a year. The figures are those published for 2025.²

California sales above $757,070, or above 25% of the company’s total sales
Property in California above $75,707, or above 25% of its total property
Payroll in California above $75,707, or above 25% of its total payroll

A corporation doing business in California pays franchise tax of 8.84% on its California income, with a minimum of $800 a year. A newly incorporated or newly qualified corporation does not pay the minimum in its first taxable year.³

How much of the income a state can tax

A state taxes its share of a company’s income and not the whole. California works out the share from sales alone for most businesses. A sale of services counts as Californian to the extent the customer receives the benefit there.⁴

That matters to a company whose staff are all in India. It has no payroll or property in California, but its sales to customers there still count, and the share is measured on them.

The federal limit and what it leaves out

A federal law of 1959, Public Law 86-272, limits what a state can charge. A state cannot tax the net income of a company whose only activity there is asking for orders for goods, where the orders are approved and shipped from outside the state.⁵

The law covers tangible goods and taxes on net income. A company that sells services gets nothing from it, and the law does not touch sales tax. California adds that a company protected by the law may still count as doing business there and have a return to file.²

Sales tax is a separate question

Sales tax is collected from customers and paid over to the state. Since a Supreme Court decision in 2018, a state can make a seller collect it without any physical presence in the state.⁶ Each state sets a limit.

Texas. A remote seller needs no permit while its Texas revenue in the preceding twelve calendar months is below $500,000. Above that, it collects from the first day of the fourth month after the month in which the limit was passed.⁶
California. A seller collects once its sales of goods for delivery in California pass $500,000 in the preceding or the current calendar year.⁷

Each state has its own limit and its own list of what is taxable. Check the states where your customers are before the limit is passed and not after.

People in a state

An employee who works in a state brings the company into that state’s payroll system, and can bring it into the state’s income tax as well. In California, payroll above the figure given earlier is enough.² The registrations are in our note on your first US employee.

Records to keep

Revenue by state for each calendar year, by where the customer is
The states where anyone works for the company, and where it holds stock or equipment
The month in which each state’s limit was passed, because registration dates run from it

We work out which states a company has to file in and prepare those returns. The federal filings are on our United States page.

Sources

Delaware Division of Corporations, Annual report and tax instructions.
California Franchise Tax Board, Doing business in California. Page updated 7 November 2025.
California Franchise Tax Board, Publication 1060, Guide for Corporations Starting Business in California. Revised April 2025.
California Franchise Tax Board, 2025 Instructions for Schedule R, Apportionment and Allocation of Income.
US Government Publishing Office, Public Law 86-272, 15 U.S.C. 381.
Texas Comptroller of Public Accounts, Remote sellers.
California Department of Tax and Fee Administration, Use tax collection requirements based on sales into California.