While filing for a federal tax extension with the IRS is relatively straightforward, filing for an extension of state income taxes can be a complicated process.
Each state has different requirements for obtaining a tax extension. Some states offer automatic extensions to taxpayers, whereas others require you to file paperwork by a certain deadline.
In addition, the legal structure of your business, the physical location of your business, and where your business operates, can also affect where you need to file for a state tax extension. Some states also require partnerships, multi-member LLCs and S corporations to pay minimum tax or income/franchise taxes.
If you intend to file for a state tax extension, we strongly recommend that you work with a CPA or tax professional to remove all doubt from the process. They’ll be able to assess the needs of your business, and correctly file the appropriate state tax extension(s) on your behalf.
However, if you’re interested in learning about the process, here’s a general overview of the steps you need to take to file for an extension of state income taxes.
1. Determine where you need to file state income taxes
Every state has the right to tax businesses that have a physical nexus in the state. Your business is required to pay taxes in each state where it has nexus.
State income tax nexus is similar to sales tax nexus. By doing business within or in relation to a state, you can trigger the effects of the nexus. The amount you are taxed will depend on the structure of your business, the amount of activity performed, and other factors.
Currently, 45 states charge income tax. Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming do not. New Hampshire and Tennessee do not require businesses to file income tax, but do collect tax on dividends and investment income.
For sales tax, a number of activities—such as having property in a state, or performing services there—can trigger the nexus. The income tax nexus is triggered by the same activities, namely ones that connect you physically to the state.
There are, however, some important exceptions.
The following will not trigger income tax nexus:
- Soliciting, directly or indirectly, sales of personal property in a state
- Providing services ancillary to the sale of property
- Keeping display samples, or other company property used to perform sales (eg. vehicles), in the state
- Accepting and fulfilling orders for delivery in the state, so long as they are not processed there.
Activities that will trigger the nexus when performed inside a state include:
- Selling services, but not personal property
- Providing services
- Accepting orders
- Repossessing property
- Maintaining inventory
To determine whether you trigger sales tax nexus, and if so, how much you are required to pay, it is best to consult with your CPA.
2. Check state tax authority requirements
As we mentioned earlier, each state taxing authority has different rules and deadlines governing how and when to file for a state extension.
If your business operates in a state that does not levy corporate state taxes, you don’t need to worry about filing a state tax return—or state income tax extension—for that state.
If it turns out that your business operates (or has nexus) in a state that does levy state income taxes, in order to file for an extension in that state, you’ll need to check in with your state tax authority and get familiar with their rules around filing for an extension of state taxes.
Visit your state tax authority’s website and look for:
- The appropriate state tax extension form
- A state income tax extension filing deadline
- Instructions on how to file a state tax extension with your state tax authority
Some states will grant automatic extensions without the need to file paperwork. Other states will require you to submit paperwork by a certain deadline.
Once you’re clear on which rules and regulations apply to your business, it’s a good idea to add any relevant deadlines to your calendar.
3. File the correct state income tax extension form(s) by the deadline
The dates for filing taxes vary from state to state. Frustrated yet?
Use the links below to locate state tax authority websites for each state, and determine when your tax filing, as well as your extension forms, are due.
Alabama | Alaska | Arizona | Arkansas | California | Colorado | Connecticut | Delaware | District of Columbia | Florida | Georgia | Hawaii | Idaho | Illinois | Indiana | Iowa | Kansas | Kentucky | Louisiana | Maine | Maryland | Massachusetts | Michigan | Minnesota | Mississippi | Missouri | Montana | Nebraska | Nevada | New Hampshire | New Jersey | New Mexico | New York | North Carolina | North Dakota | Ohio | Oklahoma | Oregon | Pennsylvania | Rhode Island | South Carolina | South Dakota | Tennessee | Texas | Utah | Vermont | Virginia | Washington | West Virginia | Wisconsin | Wyoming
4. Pay your estimated state income taxes by the usual deadline
Although an extension of state taxes can give you more time to file your return (the paperwork), it doesn’t extend the time you have to pay the taxes you owe.
You will need to estimate and pay the state taxes you owe for the year on or before your state’s regular tax filing deadline.
It’s always a good idea to err on the side of paying slightly more taxes than you estimate you owe for the year.
If your state tax authority finds that you have overpaid your taxes for the year, you’ll receive the surplus back by way of a tax refund, or you can credit it to next year’s taxes. However, if you underpay and end up owing state tax at the end of the year, you may be subject to penalties.
To be sure you’re making a reasonable estimate, we recommend you consult with your CPA.
5. Submit your state tax return by the extended due date
Remember, while the usual state tax filing dates are the same across all states, extended state tax due dates may differ from state to state.
Once you’ve obtained an extension of state taxes, you should immediately add the extended state tax filing deadline to your calendar. If you fail to file a complete state tax return for your business by the extension date, you may incur late filing penalties.
Even for tax savvy entrepreneurs, filing state income taxes and state income tax extensions is a complicated endeavor.
Unless you’re confident that you know what you’re doing, we strongly recommend that you work with a CPA or tax professional to ensure that your business is compliant with state tax requirements.