Anil Melwani on the Taxless Show: Multi-State Tax Strategy to Reduce Business Taxes (Full episode)
Anil explains how allocating income across states for a music-industry business saved them 5 to 7 percent of total income, plus how a defined benefit pension plan saved them another $200,000+ in one year.
“If you’re a self-employed or business owner with a multi-state business, you want to go with someone who knows. Not all accountants know it.”
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Multi-State Tax Strategy for NYC Businesses
Key Takeaways
- Multi-state tax has three buckets: income tax (follows residency), sales tax (follows customers), and payroll tax (follows employees). Each needs its own plan.
- Moving the business without moving yourself rarely saves money. Pass-through profit follows the active owner’s residence.
- Post-Wayfair (2018), you likely owe sales tax in states you’ve never been to.
- NY PTET lets profitable NYC pass-through owners work around the federal SALT cap. If you’re profiting $200K+, this election alone can save five figures.
Three Buckets of Multi-State Tax
If you run a business from NYC, your tax exposure lives in three separate places: where your income is sourced, where your customers are, and where your team is. Each state has its own rules, and they don’t line up.
A real multi-state plan looks at all three. Most CPAs only look at one.
Income Tax: Follows Residency
Your personal income tax follows your residency. If you live in New York City, your business profit flows through to you in NYC, and you pay federal + NY state + NYC on it. Doesn’t matter where the business is “based,” if you run it from your Manhattan apartment, NY taxes it.
The active owner trap
If you’re going to move your business out of state to save on taxes, you do need to consider your personal residence, also. If you stay in New York, everything’s going to flow through to you, and you’re still going to pay New York state and city taxes.
You’re actively managing that business. If you’re actively managing a business, you need to live in a state where that business is headquartered to really save on taxes. Now, if you’re a passive owner, maybe that’s different. But if you’re an active owner, you really want to usually be located where the business headquarters are.
When moving actually saves money
If you’re a business owner or self-employed in New York City and you’re able to run that business and live most of the time in another state like Texas, Florida, Tennessee, or Nevada, you save about 15% of your profits. That’s from the state and city income tax and the FICA/Medicare self-employment tax combined.
The sweet spot for NYC business owners who would really save from moving is usually between $100,000 to $200,000 of taxable income. At that point, you save on state and city income taxes plus the full self-employment tax.
For example, on $200K of profit, moving out of NYC to a state with no income tax saves about $30,000 a year.
Don’t just make a decision on taxes. Anil: “Make it on where you wanna spend, how you wanna live your life. What are your family plans, your lifestyle plans? Where do you wanna see yourself in five, ten years? Taxes are important, but your life’s a little more important.”
Short: Can I Ignore Back Taxes in New York if I Moved States?
Watch: Can I Ignore Back Taxes in New York if I Moved States? (Short)
Moving out of New York doesn’t erase what you owe to New York. Anil explains what NY actually pursues after you leave.
When you don’t have to move
If you’re going to have to pay rent for an office, own property, and/or have W-2 employees or independent contractors heavily in another state, and you don’t want to move there, there could be some kind of state allocation that saves you money. But the main savings come from moving your residence.
Sales Tax: Follows the Customer
Sales tax is different. Post-Wayfair (2018), states can require you to collect sales tax once you cross their economic nexus thresholds, even without a physical presence there.
As far as sales taxes from previous years, it’s still unclear as to which states are going to go back and try to collect back taxes. Looking back, the look-back period, look-back clauses, all I can say for right now is track whatever you can going forward. Start collecting and remitting going forward, and be prepared in case you get a letter notifying you about previous taxes. 212 Tax offers consultations on voluntary disclosure programs and look-back clauses across several states.
Payroll Tax: Follows the Employee
If you have W-2 employees in other states, you likely have to register as an employer in each of those states. Even one remote engineer in Texas can trigger state registration, withholding, unemployment insurance, and workers’ comp in Texas.
This hits NYC SaaS and agency owners the hardest. Your team is remote, but your tax exposure isn’t.
The SALT Cap Workaround: NY PTET
The federal $10,000 cap on state and local tax deductions hits profitable NYC business owners hardest. New York responded with the Pass-Through Entity Tax (PTET).
Instead of you paying NY state tax personally (capped at $10K deduction federally), your pass-through entity pays NY state tax, deducts it federally with no cap, and gives you a credit on your NY return. Net effect: you deduct the NY State tax fully on your federal return.
If you’re profiting $200K+ through an LLC or S-Corp, this election alone can save five figures in federal tax. You have to elect by March 15th each year.
Case Story: Multi-State Music Business (NYC + California)
“If you’re a self-employed or business owner with a multi-state business, you want to go with someone who knows. Not all accountants know it.” (Anil Melwani, on a client featured on the Taxless Show)
The situation: Two partners headquartered in NYC and California (the two highest-tax jurisdictions in the country) booking musical talent across the US, Canada, and Mexico. Their previous accountant couldn’t even figure out their filing deadline. Found Anil online during COVID, five days before the filing deadline.
What Anil did: Allocated their income across the multiple states where they actually did business, reducing their overall state tax burden. Then set them up with a defined benefit pension plan with a 212 Tax financial partner, letting them put “well over a couple hundred grand a year” into tax-deductible retirement contributions instead of being capped at $70K/yr on SEP IRA.
Outcome: 5 to 7 percent tax savings on total income from multi-state allocation alone, every year, growing as they grow. Defined benefit plan: roughly 40 cents saved on each dollar contributed (combined NY/CA/federal bracket ~50%+). On $500K contributed, ~$200K saved in one year.
→ Watch the full Taxless Show episode
See How 212 Tax Handles Business Taxes Differently
How 212 Tax Handles Business Taxes Differently Than Your Normal CPA
Learn how 212 Tax handles business taxes differently than your normal CPA to make sure you pay not only the least amount of taxes but increase your wealth.
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Trust Fund Taxes (Why These Matter More)
Payroll taxes and sales taxes are what they call trust fund taxes. You’re really just temporarily holding money that always belonged to the government, and then you remit it at the end of the quarter, the week, the month, whatever the period is for that type of tax.
That’s why not only the IRS, but all these states and local authorities take these back taxes very seriously. It’s basically just like going to their bank account, stealing money from them.
The penalties, the interest, and the level of aggressiveness (liens and levies and collections) are way higher and faster with payroll taxes and sales taxes. So if you’re behind on multi-state payroll or sales tax, clean it up before they come find you.
Frequently Asked Questions
Do I owe NY tax if my business is online only?
Yes, if you live in New York. Your personal income tax follows your residency, not your business type. Online pass-through profit flows to you, and New York taxes you on it.
Can I avoid NYC tax by moving my online business?
Only if you move yourself too. Pass-through business profit follows the active owner’s personal residence. If the LLC is in Florida but you’re still in Manhattan running it, NY still taxes you on the whole profit.
What is economic nexus?
Economic nexus is a state’s right to require sales tax collection from out-of-state sellers once they cross a revenue or transaction threshold. Most states set it around $100K in sales or 200 transactions per year, though thresholds vary. The 2018 Wayfair decision made this legal nationwide.
Do I need to register my business in other states?
Maybe. If you have employees, inventory, offices, or significant sales in another state, you likely need to register for some combination of income tax, sales tax, and/or employer payroll tax in that state. Each state has its own rules.
See If the 212 Tax Business Blueprint Is Right for You
We’re not just tax preparers. We’re tax, business, and finance strategists who help our clients not only save on taxes but also grow their wealth.
The 212 Tax Business Blueprint includes:
- Accountant Quality Control Review of your last 2 years of returns
- Tax Gap Compliance Review to find mistakes before the government does
- Entity Structure Review for your state, city, and profit level
- Quarterly Cash Flow Strategy with monthly or quarterly meetings
- Multi-State Profit Protection Analysis
- Family Wealth Transfer Strategy
- Year-End Tax Reduction Playbook
Call 646-933-9534 or fill out the form to see if the 212 Tax Business Blueprint is right for you.