Last reviewed October 7, 2026 · By the NYBACS advisory team
Short answer
Federal filings go to the IRS and apply the same rules nationwide, based on the company's tax classification. State filings go to each state where the company is formed, registered or has nexus, and each state sets its own taxes, forms and deadlines — income, franchise, gross receipts, annual report or flat fees. A company can owe nothing federally and still owe state tax, and vice versa.
Key takeaways
- One federal system, fifty state systems: classification and core forms are set federally, but each state decides what it taxes and how.
- State filings are triggered by formation, registration to do business, or nexus from activity — not by where the owner lives.
- Many state charges, such as franchise taxes and annual fees, are owed regardless of profit.
- US tax treaties generally bind the federal government, not the states, so treaty protection does not automatically remove state tax.
- Several states have no corporate income tax but levy other business taxes, such as Texas's franchise tax or Washington's B&O tax.
Two separate layers, two separate agencies
The federal government and the states each have their own taxing authority. The IRS administers federal income tax and information returns under the Internal Revenue Code. Each state's revenue department — for example, New York's Department of Taxation and Finance or California's Franchise Tax Board — administers that state's taxes under state law. A third agency, the state's Secretary of State or Division of Corporations, often collects annual reports and entity fees.
The practical consequence: filing with the IRS does nothing for your state obligations, and a state filing does not satisfy the IRS. They are separate returns, separate payments and separate penalty regimes.
How the two layers compare
| Federal (IRS) | State | |
|---|---|---|
| Who sets the rules | Congress and Treasury, uniformly nationwide | Each state legislature, differently |
| What triggers a filing | Tax classification (Form 1120, 1065, pro forma 1120 with Form 5472) | Formation, registration to do business, or nexus |
| Types of tax | Income tax and information returns | Income, franchise, gross receipts, sales and use, payroll, flat annual fees |
| Profit-based? | Mostly | Often not — many charges are fixed or based on capital, receipts or shares |
| Treaty relief for foreign owners | Can apply | Generally does not apply |
| Typical starting point | The company's own books | Usually federal taxable income, then state adjustments and apportionment |
Because most state income tax returns start from federal taxable income, the federal return is normally prepared first, and the state returns follow.
What creates a state filing obligation
Three things typically put a company on a state's radar:
- Formation. The state where the LLC or corporation was created will charge an annual tax, fee or report for the privilege of existing there — even if nothing happens in that state.
- Registration (foreign qualification). Registering to do business in another state usually brings annual reports and that state's minimum taxes.
- Nexus. Employees, an office or warehouse, inventory, or — in many states — sales above economic thresholds can create income, franchise or sales tax nexus, sometimes without any registration having been made.
A single US company therefore often files in two or more states: its state of formation and the state where it actually operates.
Why a no-federal-tax year can still bring a state bill
Founders are often surprised by state charges in a year when the IRS filing showed no tax. Common reasons:
- Fixed minimum taxes — California charges LLCs and corporations registered or doing business there a minimum franchise tax whether or not they make money.
- Capital- or share-based taxes — Delaware franchise tax on corporations is based on authorized shares or assumed par value capital, not income.
- Gross receipts taxes — Washington's business and occupation tax, Ohio's commercial activity tax and Texas's franchise (margin) tax can apply to businesses that are unprofitable.
- No treaty shield — a foreign-owned company protected from federal tax by a treaty's permanent establishment rules may still be taxable at the state level.
Conversely, a disregarded LLC's profit is not taxed federally at the LLC level but may still trigger state filings for the LLC or its owner.
Deadlines rarely line up
State due dates often track federal ones for income tax returns, but not always, and annual reports and flat taxes run on their own calendars — Delaware corporations file by March 1 and Delaware LLCs pay their annual tax by June 1, for example. Extensions also differ: some states accept the federal extension automatically, others require their own form or a payment. A combined federal-and-state calendar is the only reliable way to keep track.
It also helps to record who is responsible for each line: the IRS return may sit with a tax preparer, the annual report with a registered agent or corporate-services provider, and payroll filings with a payroll provider. Most missed state filings happen in the gaps between those providers, where each assumed another was handling it.
Common mistakes to avoid
- Assuming an IRS filing covers state obligations as well.
- Ignoring the state of formation because the company operates elsewhere.
- Relying on a tax treaty to eliminate state taxes.
- Missing a minimum or flat state tax in a loss year.
- Not registering in the state where employees or inventory are located.
- Applying a federal extension to state returns without checking each state's rule.
NYBACS 360° support
How NYBACS helps
- Identifies every state where your company is formed, registered or likely to have nexus, and what each requires.
- Builds one federal-and-state compliance calendar with due dates, payment amounts and owners for each task.
- Coordinates federal and state returns so state filings start from consistent federal figures.
- Handles annual reports and flat state taxes so the company stays in good standing.
- Flags new activity — a hire, a warehouse, a sales spike — that may create a filing in another state.
Frequently Asked Questions
Does a foreign-owned single-member LLC file state income tax returns?
It depends on the state. Some states follow the federal disregarded treatment and look to the owner; others impose entity-level taxes or fees on LLCs regardless. Each state where the LLC is formed or active needs to be checked.
Are there states with no business income tax at all?
A few states, such as South Dakota and Wyoming, have no corporate income tax, but they still charge annual fees or reports. States without income tax, like Texas, Nevada and Washington, often levy franchise or gross receipts taxes instead.
Is sales tax a federal or state matter?
State and local. There is no federal sales tax in the US; each state (and sometimes city or county) sets its own sales tax rules, nexus thresholds and filing frequency.
Who receives payroll taxes, the IRS or the state?
Both. Federal payroll taxes go to the IRS, while state income tax withholding and unemployment insurance are registered and paid with the state where employees work.
