Expanding Out of State? Key Tax Rules for Michigan Businesses

September 5, 2025 by Gordon Advisors

It’s increasingly common for business owners to start their business in one state while operating or expanding into another. Recently, Michigan-based manufacturer High Format opened new facilities in Wisconsin to better connect with its customers, increase production, and reduce transportation routes. Similarly, St. Julian Winery expanded its retail distribution and wholesale markets via a newly forged partnership in Mississippi, giving it the opportunity to reach an untapped market.

Remote work, franchise expansion, and e-commerce shopping are driving a trend of interstate growth. But growth into new states raises key questions for business owners, like: What filings are required? Do I need to register in this new state? Will I be double-taxed? And, are there any ways to reduce my tax burden? How are the tax laws different than our home state?

From state income tax to payroll and employment tax, each state has its own compliance requirements. For Michigan business owners, understanding these requirements can help enable their growth while minimizing potential risks and penalties.

Expanding Out of State? Here Are 5 Tax Considerations:

1. Nexus – Where Your Business is Taxable

Your business tax obligations begin with nexus—a defined connection to a state, whether through its real estate, employees, or consumers—that allows that state to tax your business.

For business owners with offices, warehouses, or employees out of state, nexus can be defined in several ways:

• Physical – Companies with real property, like the case of High Format entering Wisconsin.
• Economic – Companies receiving sales revenue from other states.
• Affiliate – Businesses creating out-of-state affiliations to generate sales, like St. Julian.
• Click-through – E-commerce company sales made via in-state online referrals.

Michigan businesses often expand first into neighboring states like Ohio, Indiana, Illinois, Wisconsin, and Minnesota. And as they do, they will find that nexus rules vary by state. Wisconsin, for example, has one of the lowest economic nexus thresholds in the region, with nexus triggered by just $100,000 in sales or 200 separate transactions. Illinois can create nexus not only from direct sales but also through relationships with in-state affiliates or partners, meaning a Michigan business could owe taxes without having a physical presence in the state.

When meeting any nexus scenario, your business generally must register and file taxes in that state. Importantly, nexus rules are constantly evolving; some states may have higher thresholds or slightly different definitions. Business consulting experts at Gordon Advisors can help you start with a nexus check in the states where you want to sell, have payroll, or own new property.

2. State Income and Franchise Taxes

When operating in more than one state, your business will begin owing state income or franchise taxes wherever you have nexus.

• State income taxes are typically based on profits apportioned (or split) across sales, property, and payroll in each state. Many states offer credits to prevent double taxation, which can be a relief if your business generates revenue in multiple locations.
• Franchise taxes are fees for just doing business in a state and can apply even if your business shows no profit. These rules vary widely—some states calculate franchise taxes based on revenue, others on net worth, and minimum fees differ significantly.

For Michigan businesses expanding regionally, tracking nexus records of where you have sales, employees, or property, understanding apportionment (how those taxes will be split among states), plus timely filing in every relevant state, ensures you avoid penalties and can continue growing with confidence.

3. Sales and Use Taxes

Businesses selling goods or services across state lines must also consider sales and use taxes.

States generally require collection of sales tax once nexus exists. For example, if a Michigan e-commerce retailer reaches Wisconsin’s $100,000 sales threshold, it must register and collect Wisconsin sales tax on those transactions. Failure to comply can lead to fines, penalties, and interest, sometimes retroactively.

Use tax applies when items purchased in one state are used in another—an often-overlooked area for manufacturers, distributors, and remote sellers. Tracking where sales occur, registering in the proper states, and accurately collecting and remitting taxes helps prevent surprises at audit time.

4. Payroll and Employment Taxes

Having employees in multiple states adds another layer of responsibility. Each state may require registration for income tax withholding, unemployment insurance, and other employment-related contributions.

Employers need to carefully track where each employee works, even if it’s a hybrid or remote arrangement. For instance, a Detroit-based company with a remote employee living in Indiana must register in Indiana for payroll taxes and comply with state-specific unemployment insurance rules. Missing these steps can trigger audits, fines, or even double reporting. Keeping payroll accurate and state-compliant protects your employees and your bottom line.

5. Deductions, Credits, and Planning

While these initial tax implications may sound burdensome, expanding to new states can also open the door to valuable tax opportunities, like credits and deductions.

Many states offer credits for taxes paid elsewhere, incentives for hiring, or deductions for certain business investments that cross state lines. Ohio’s Job Creation Tax Credit, for example, offers major long-term tax savings tied directly to job creation, making it ideal for large-scale expansions. When Anduril Industries chose Ohio for its $1 billion, 5-million-square-foot production facility, the company secured a 2.594% tax credit for 30 years, potentially saving around $450 million, in exchange for a commitment to create 4,008 full-time jobs by the end of 2035.

A helpful resource to explore these opportunities is the IRS’s State Government Websites page, which links directly to each state’s tax and incentive programs.

The great news is that with the right planning and with the help of tax consultants like Gordon Advisors, multi-state operations can reduce their tax burdens rather than increase them.

The One Big Beautiful Bill Act: New Tax Provisions

No tax discussion would be complete without mentioning that the One Big Beautiful Bill Act (OBBBA) brought forward new federal tax changes that may still influence business owners:

• Expanded State and Local Tax (SALT) Deduction Cap — The SALT deduction increase from $10,000 to $40,000 affects business owners who pay state income or property taxes in multiple states due to having nexus or operations across different jurisdictions. They can deduct significantly more of those taxes at the federal level—particularly beneficial to businesses operating in multiple high-tax jurisdictions, like California, New York, New Jersey, Massachusetts, and Minnesota, among others.
• Federal Tax Rate and Bracket Enhancements — The individual income tax rates from the Tax Cuts and Jobs Act (TCJA) were permanently extended, and inflation adjustments were applied to the lowest six tax brackets. Each tax bracket will now be adjusted annually for inflation going forward. Owners or income pass-throughs (e.g., LLCs, S-corporations) operating across states may see reduced federal liabilities, altering decisions on state nexus, income allocation, and how operations in various jurisdictions feed into overall federal tax strategy.
• Keeping an Eye on State Changes — Many states conform to federal tax codes, meaning state-level rules may shift following the OBBBA federal adjustments. Businesses should monitor state-by-state policy updates to ensure appropriate deductions, credits, nexus determinations, and compliance.

Turning Tax Complexity into Opportunity

Operating across state lines brings both growth opportunities and tax complexity. Businesses need to understand nexus, track where income and sales occur, comply with state filings, and use deductions or credits strategically. Staying proactive helps avoid penalties, reduces the risk of double taxation, and ensures your business can grow efficiently across multiple states.

Contact Gordon Advisors today to get expert guidance on nexus, state filings, and strategic tax planning for your business—so you can focus on your growth, while we bring financial clarity to your strategic plans.