If your business is growing, you may want or need to expand to other locations. One or more of these locations may be across state lines. The U.S. is made up of 50 states and the District of Columbia, each of which has its own rules and regulations. What does expanding into another location mean for your operations, your legal matters, and your taxes?
What to consider when expanding into another state location:
Operational matters
Expanding a business into another state is almost like starting a business from scratch. Most of the things you did to startup have to replicated in a second location. While there may be overall economies of scale in having multiple locations, there are certainly additional costs. Be sure to budget accordingly.
Look back at your startup to-do list so your new location can get up and running. For example, getting connected to the internet, obtaining a local phone number, opening a local bank account, and revising your website and social media info to reflect the new location are just some of the actions to complete.
Conducting business in more than one state also means stretching management capabilities. How do you standardize processes? Do you use a one-size fits-all approach or do you adapt to local customs and customer preferences? Communication can be challenging, especially if your locations are in different time zones. Maintaining a consistent company culture and quality control can also present difficulties.
Review your insurance coverage. You’ll need a business owner’s policy and other protection. Can your existing policy be expanded to cover your new location, or do you need separate policies?
Legal matters
Are you legally allowed to do business in another state? If you have a physical location in that other state—an office, a factory, a warehouse—you have to register your entity to conduct business there. You’re called a “foreign entity” even though you are entirely U.S. based. Check with the Secretary of State there in the new location. You likely will need a registered agent in that state.
Operating in another state means compliance with that state’s laws. Obtain any necessary licenses and permits to work in that state. For example, if you are in construction, you’ll need various trade licenses to operate there.
Of course, you’ll need to comply with state-specific laws, such as local zoning laws, employment laws, and environmental rules. If you have an employee handbook, it needs to be revised so it reflects state laws relevant to the new location. For example, you may need to comply with pay transparency rules in your new location even though they don’t apply in your original spot. ADP has a listing of locations with these rules for 2025.
Tax matters
Income, employment, and sales tax rules apply to the commerce you conduct in that other state.
Income taxes. The income earned by the business in a state is subject to taxes in that state. For owners of pass-through entities, this means paying state income tax there (including paying estimated taxes if needed and filing returns) on the business apportioned there. There is no state income tax in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming.
If your business is incorporated, check state income tax laws. Only 6 states—Nevada, Ohio, South Dakota, Texas, Washington, and Wyoming—have no corporate income tax. But several of these states impose another type of tax, such as a gross receipts tax in Nevada, a privilege tax in Tennessee and Texas, and a business entity license tax in Wyoming.
Employment taxes. Withholding for state income tax, as well as other state-level taxes imposed on employees (e.g., disability; family and medical leave) is mandatory for employees working in states with an income tax. This is so even though your headquarters remains in another state.
You are also responsible for state unemployment tax. The rules vary by state. Paycom has a state-by-state listing of state unemployment tax act (SUTA) rates for 2025.
Sales taxes. You must collect and remit sales tax on transactions within the state unless there is no sales tax there. The only states without a sales tax are Alaska, Delaware, Montana, New Hampshire, and Oregon. Register in the new state (if applicable). Note dates the dates on which you must file state sales tax returns and remit sales tax collections.
Final thought
Expanding your business into another state can be an exciting activity but it certainly entails risk. It costs you money and probably a lot of your time. There’s no guarantee of success. But there’s potential that can’t be ignore.
As T.S. Eliot said: “Only those who will risk going too far can possibly find out how far one can go.”
For additional information on expanding your business, see this list of blogs.
