Do employees a staffing business places at client sites in other states create income, franchise and sales tax nexus there from the first day?

A staffing business hires consultants or temporary workers as its own W-2 employees and sends them to work at clients' offices in other states, for anywhere from two weeks to nine months. Three questions follow. Does the presence of those employees subject the business to the other state's income or franchise tax? Does it owe sales tax or a gross receipts tax there? And does either start on the first day, or only after some period of time or amount of billings? The answers differ by state, by tax and by the type of entity. This article assumes the staffing business is the employer of its workers; a professional employer organization, which shares the employer role, is a different arrangement.

What federal law does and does not protect

A state can tax a business only if the business has nexus, a sufficient connection with the state. Two federal sources bear on a staffing business whose employees work in other states.

South Dakota v. Wayfair, Inc. (2018), decided June 21, 2018 (No. 17-494), removed the requirement that a business be physically present in a state before the state can require sales tax nexus. Physical presence still suffices, and a dollar threshold is a second way to create nexus, not a minimum that presence must also reach. In criticizing the old rule, the Court asked why "a single employee or a single warehouse should create a substantial nexus," but it did not hold that an employee in a state is not enough. Every state rule reviewed below treats employees at work as presence.

Public Law 86-272 (15 U.S.C. section 381(a)), the usual federal income tax defense, does not apply here. It protects a business whose only activity in the state is the solicitation of orders for sales of tangible personal property, with approval and shipment from outside the state. A staffing business sells a service, and its consultants perform it; they do not take orders. Illinois's regulation states, for Illinois's own purposes, that the federal statute covers only tangible personal property. Under that regulation, selling, delivering or soliciting a service is unprotected, unless the activity is ancillary to solicitation or is listed in subsection (c)(5) (86 Ill. Adm. Code 100.9720(c)(2)(B)).

California, Washington and Texas: employees at work are presence

In California, Washington and Texas, the rules that define nexus for income, franchise or business taxes count employees working in the state, and none sets a minimum number of days.

California. The Franchise Tax Board (FTB) administers California's income and franchise taxes. A taxpayer is doing business in California if it is "actively engaging in any transaction for the purpose of financial or pecuniary gain or profit" (Cal. Rev. and Tax. Code section 23101(a)). Subdivision (b) separately lists sales, property and payroll thresholds, each the lesser of a stated dollar amount or 25 percent of the taxpayer's total. The FTB states that falling below the thresholds does not take a business outside the doing-business rule. The FTB's example describes an out-of-state partnership whose employees work from their homes in California, selling and providing warranty work to California customers. The FTB concludes that the partnership is doing business in California through its employees, because they are "actively engaging in transactions for profit on behalf of Partnership A," even though the partnership's California property, payroll and sales are below the thresholds. A placed consultant performs the staffing business's contract with the client at the client's site, which is the business's transaction for profit in California. This is the FTB's likely reading, and it rests on an analogy: the FTB's facts are sales and warranty work, not placed consultants.

The latest thresholds on the FTB pages reviewed are for 2025: $757,070 of sales, $75,707 of property and $75,707 of payroll. No 2026 figures appeared there. Sales by an agent or independent contractor count toward the sales threshold under subdivision (b)(2). That provision is a threshold rule, not a presence rule. For a limited liability company (LLC) taxed as a partnership, doing business in California triggers the annual LLC tax (section 17941), the LLC fee on California income (section 17942) and the return (section 18633.5).

Washington. A person is deemed to have substantial nexus with Washington if, in the current or immediately preceding calendar year, it has more than $100,000 of cumulative gross receipts from the state or a physical presence in the state (RCW 82.04.067(1)(c)). That presence "need only be demonstrably more than a slightest presence" (RCW 82.04.067(1)(c)). A person is physically present "if the person has property or employees in this state" (RCW 82.04.067(3)(a)). Because the test looks to the preceding year as well, a two-week placement in one year is a nexus fact in the next. The presence clause has a limit for trade conventions (RCW 82.32.531). The dollar route does not remove the employee route, which matters for engagements billing less than $100,000. The Department of Revenue's rules are not a safe guide to a service business. WAC 458-20-193 is written for a seller of tangible personal property and carries a $267,000 figure that is older than the statute's $100,000. WAC 458-20-19401 still prints tests from before 2020. The statute controls. Washington's business and occupation tax classifies a staffing business's services as service and other activities (RCW 82.04.290(2)). No rate is stated here.

Texas. The franchise tax rule lists "having employees or representatives in Texas doing the business of the taxable entity" among the activities that establish nexus (34 Tex. Admin. Code section 3.586(d)(5)). Subsection (d)(19) lists employees, independent contractors, agents and other representatives in a solicitation context. Subsections (c) to (f) contain no days-based test and no de minimis (minimal activity) language. Texas also has an economic route, gross receipts of $500,000 or more (subsection (f)(1)). That route does not displace the presence route. The rule was reported amended in January 2026, and the adopted text was not reviewed. A copy of the rule read on November 5, 2026 showed amendments only through February 2021, so the January 2026 report is unconfirmed.

The first-day reading for these three states rests on the words of each test: any transaction (California), property or employees (Washington) and employees doing the business (Texas). None states a day count. The reading does not extend to the states in the next section.

Michigan, New York and Tennessee: where the answer differs

Three states read for this article give a different answer for a staffing business organized as an LLC taxed as a partnership, or apply a test other than first-day presence.

Michigan. Michigan's corporate income tax gives a taxpayer substantial nexus if it has "a physical presence in this state for a period of more than 1 day during the tax year" (Mich. Comp. Laws section 206.621(1)). The Department of Treasury's Revenue Administrative Bulletin 2014-5 reads the rule this way: presence on one day means presence for any portion of a day, and presence of more than one day means presence that extends beyond a single day or occurs on more than one day. Three limits apply to this test.

1. The test applies to a "taxpayer" under that act, which means a corporation, insurance company, financial institution or unitary business group. An LLC taxed as a partnership is a flow-through entity (one whose income is taxed to its owners, not to the entity), and it is not a taxpayer (Mich. Comp. Laws sections 206.611(5) and 206.607(2)). The third nexus test does reach a corporate owner with an interest in a flow-through entity that has substantial nexus (section 206.621(1)). A corporate member is therefore the case the test reaches.
2. A flow-through entity's withholding at the entity level ran only for tax years beginning before July 1, 2016, and the tax imposed on the entity itself is elective (sections 206.703(3) and 206.813). The members' own Michigan nonresident returns and any composite return (one return filed for several members) were not reviewed.
3. The statute excludes professionals and other service providers whose activity is not significantly associated with the taxpayer's ability to establish and maintain a market (section 206.621(2)(b)). That exclusion protects the client that hires them. The bulletin reads the exclusion as not insulating the provider from nexus for its own business activity, and one of its examples treats consulting services by a corporation as physical presence.

In Michigan, physical presence means activity conducted by the taxpayer, or on its behalf by an employee, agent or independent contractor acting in a representative capacity, so the test counts days of activity.

New York. For a corporation, doing business in New York "is determined by the facts in each case," and the employment of agents, officers and employees in the state is one factor beside the continuity and regularity of activities and the location of offices (20 NYCRR 1-2.4(b)). A corporation is also subject to tax if its New York receipts reach $1,283,000 for tax years beginning on or after January 1, 2024 and before January 1, 2027. That is the figure the Department of Taxation and Finance publishes as the adjusted threshold under N.Y. Tax Law section 209(1)(b) and (e). For a partnership, the rule is 20 NYCRR 132.4(a)(2). A business is carried on in New York where the nonresident "occupies, has, maintains or operates desk space," an office or another place where its affairs are systematically and regularly carried on. A business is also carried on in New York if activities in connection with the business are conducted in the state "with a fair measure of permanency and continuity." That is a permanency test, not a first-day rule. A two-week placement is arguable either way. Nine months of three employees at a client site is not arguable. No New York source reviewed says expressly that employees at client sites make a partnership a New York filer, but the nine-month placement meets the words of the test.

Tennessee. Tenn. Code Ann. section 67-4-2004(14)(E)(iii) provides that an out-of-state person is not "doing business" in Tennessee solely because its equipment, tooling, inventory and employees are present on a temporary basis, if four conditions hold. First, the activity is not the pursuit, creation or maintenance of a market in Tennessee. Second, the equipment and tooling are not used, worked on or held in Tennessee by an affiliate. Third, the out-of-state person's employees have no control over the use or work done in Tennessee by the in-state person. Fourth, the extent and value of the items, the number of employees and the number of days are qualitatively and quantitatively de minimis (minimal). On the Tennessee Department of Revenue's likely reading, the exception does not shelter placed consultants. Their work is the pursuit and maintenance of the firm's market in Tennessee, and the firm's own employees do the work, so they do not lack control over it. The statute's other exceptions cover purchasing trips (not more than 30 days a calendar year) and trade shows (20 days a year). Those are exceptions to "doing business," not to substantial nexus.

Illinois and other day language. Illinois's de minimis (minimal activity) concept and its two-week display-room item belong to the federal solicitation framework. They measure unprotected activities that establish only a trivial additional connection (86 Ill. Adm. Code 100.9720(c)(2)(D) and (c)(5)(J)). Illinois's rule keyed to more than 30 working days, covered in the library's article on withholding and unemployment insurance, is a withholding rule, not a nexus rule. A search for a day-count or de minimis rule for temporary service employees in other states returned withholding thresholds and telework guidance, and no safe harbor.

The published rules reviewed that count days or time are therefore these three. Michigan's corporate test begins after one day. Tennessee has an exception for temporary presence, but on the likely reading it does not reach consultants who perform the firm's contract. New York's partnership test turns on permanency and continuity. The first-day reading comes from the text of California's, Texas's and Washington's rules. In New York it is a reading of a facts-and-circumstances test, and in Michigan the rule points the other way for corporations.

If the consultants are contractors

Whether the workers are employees or independent contractors changes the rule, not only the label. California counts "sales by an agent or independent contractor of the taxpayer" toward the sales threshold only (Cal. Rev. and Tax. Code section 23101(b)(2)). That provision is not a presence rule under subdivision (a). Whether a contractor's in-state work is attributed to the business rests on a doctrine covered in a separate article in this library on whose physical presence counts as the company's. The statutory language is Michigan's, covering activity by someone "acting in a representative capacity", and Texas's list of independent contractors and agents. Washington's rule looks to activity, directly or through an agent or other representative, that is significantly associated with establishing or maintaining a market (WAC 458-20-193(102)(a)(iii)). That is a market rule, not a general attribution rule. A contractor who performs the service the firm sold is doing the firm's business, and that is the stronger ground. This article adds only that the label on the worker does not remove presence in these states.

Withholding and unemployment insurance are a separate question

An employer that withholds for a state has treated its employees as working there, which is the same fact that supports nexus; the library's article on withholding and unemployment insurance when an employee works in more than one state says so. New York's convenience-of-the-employer rule (20 NYCRR 132.18(a)) is a rule on withholding and the allocation of a nonresident employee's pay, not a nexus rule.

Sales and gross receipts taxes on the staffing charge

Sales tax registration depends first on whether a state taxes what the staffing business sells, and a staffing service is taxable in some states and not in others. Where a state does tax the service and the business has employees there, registration does not wait for any dollar threshold. Physical presence survived the Supreme Court's 2018 decision in South Dakota v. Wayfair, Inc. as a sufficient basis for nexus, and the threshold is an additional door.

States that do not tax staffing. California taxes sales of tangible personal property through 2026 (Cal. Rev. and Tax. Code section 6006), so staffing fees are outside its sales tax regardless of how many employees are in the state. On January 1, 2027, section 6006 as amended by Senate Bill 122 (Stats. 2026, ch. 23) adds two kinds of transfers: digital products on tangible storage media, and the right to access or use digital products electronically. The amended text adds no entry for services supplied by employees, so on those words a staffing fee stays outside the base. The definition of "digital product" is in a separate section, and the California Department of Tax and Fee Administration's material was not reviewed. Ohio ended its tax on employment services and employment placement services effective October 1, 2021 (Am. Sub. H.B. 110). The Ohio Department of Taxation's alert says those services "are no longer taxable in Ohio," and the current list of taxable services in Ohio Rev. Code section 5739.01(B)(3) has no employment service entry.

States that tax staffing in some form. Five states reviewed do so.

• Pennsylvania taxes help supply services, meaning providing temporary or continuing help that is on the supplier's payroll and under the purchaser's supervision (72 P.S. section 7201(k)(15) and (cc)). The service is taxable if delivered or used in Pennsylvania. Delivery is "an employe reporting for work at a location in this Commonwealth," use is "an employe performing work at a location in this Commonwealth," and work at an out-of-state location is not taxed (61 Pa. Code section 60.4(b)). A seller must apply for a license before beginning business if it has a place of business, has an agent or representative located in the Commonwealth permanently or temporarily, or engages in the activity as a business there (72 P.S. section 7208(a)). The base is the service fee, which is gross fees less separately stated employe costs. Where costs are not itemized on the invoice, the base is the gross fee (61 Pa. Code section 60.4(c)). Section 7201(b)(3.5)(i) adds a dollar route at $100,000 for the preceding twelve-month calendar period, so registration does not turn on employees alone. The sales tax rate was not reviewed.
• Connecticut taxes services by employment agencies and agencies providing personnel services (Conn. Gen. Stat. section 12-407(a)(37)(C)). Connecticut's Policy Statement 2007(7) on personnel services states that the service is taxable regardless of where the provider is located, and not taxable if the recipient's facility is outside Connecticut. The base is the entire charge less separately stated compensation, fringe benefits, workers' compensation and payroll taxes of leased employees. The statute's exclusion of separately stated compensation and payroll costs for leased employees and professional employer organization worksite employees does not extend to employees hired by a temporary help service and assigned to support or supplement a client's workforce. The policy statement's current status, and Ruling 2018-2 on personnel services, were not reviewed.
• New Mexico has applied its gross receipts tax to staffing firms. In an administrative decision (Decision and Order No. 18-38, posted November 21, 2018), a Nebraska-based staffing agency supplying medical professionals to New Mexico facilities was liable because its own employees performed the services in New Mexico and the disclosed-agent exclusion in NMSA section 7-9-3.5(A)(3)(f) did not apply. The decision is nonprecedential. A court affirmed gross receipts tax on a staffing firm's payroll-related receipts because the firm had not shown that it received them solely as a disclosed agent (MPC, Ltd. d/b/a Manpower of New Mexico v. New Mexico Taxation and Revenue Department, 2003-NMCA-021, 133 N.M. 217, 62 P.3d 308 (Ct. App. 2002)). Nothing reviewed says that taxpayer was out of state.
• Hawaii's general excise tax reaches the gross income of a service business at four percent (Haw. Rev. Stat. section 237-13(6)(A)). The tax is imposed on the business, not collected from the client as a sales tax in the ordinary sense. County surcharges were not reviewed.
• South Dakota's general rule reaches the gross receipts of a person engaged in a business in which a service is rendered, unless the service is specifically exempt (S.D. Codified Laws section 10-45-4). A service is any activity engaged in for other persons for a fee, and services rendered by an employee for the employer are not taxable (section 10-45-4.1). On the words of the statute, a staffing firm's charge to its client is an activity engaged in for another person for a fee, and the exclusion for an employee's services to the employer covers the worker's services to the firm, not the firm's service to the client. No staffing-specific pronouncement or exemption was reviewed.

West Virginia's text reviewed is silent on staffing and supports no conclusion. New Jersey, Washington's retail sales tax and every other state were not verified and are not stated. Washington's business and occupation tax reaches service activities by classification, as described above.

Where the staffing fee is sourced once nexus exists

Once a state has nexus over the staffing business, the next question is how much of the fee the state's income or franchise tax formula assigns to that state. This step is called sourcing. California, and New York for a corporation, assign service receipts to where the customer receives the benefit, and Texas assigns them to where the service is performed. Other states were not reviewed on this point.

California. Sales from services are in California "to the extent the purchaser of the service received the benefit of the services in this state" (Cal. Rev. and Tax. Code section 25136(a)(1)). The amended regulation, Cal. Code Regs., tit. 18, section 25136-2, applies to taxable years beginning on or after January 1, 2026; the prior text governs 2025 and earlier years. The 2026 start rests on the FTB's second notice of modifications of May 20, 2025, and the final text's own applicability provision was not read. Under the amended text, the benefit is presumed received in California to the extent the contract between the taxpayer and its customer, or the taxpayer's books and records kept in the normal course of business, indicate that it is. The list of what a service relates to includes individuals physically present in California when the service is delivered. A taxpayer or the FTB can overcome the presumption by a preponderance of the evidence. Substantiation, reasonable approximation, the location of the order and the customer's billing address then follow the presumption, in that order. A customer's headquarters address is therefore reached only at the last step. The regulation's examples assign a payroll services firm's receipts by the ratio of the customer's employees in the state, and an audit firm's receipts by the hours the audit firm's employees worked in each location. No example addresses staffing, but the structure points to the client site. When the statement of work names the California site and the timesheets record the hours there, the contract and the books indicate California. The LLC fee under section 17942 is measured by the same assignment rules, so the $900 fee in the example below applies only if the billings are assigned to California under the regulation.

New York. For a corporation, the receipts rule looks to the customer's location through a series of methods, the first of which is where the benefit is received (N.Y. Tax Law section 210-A(10)). A partnership is different. It allocates from its books and records first. Only if the books do not disclose the New York share does it use the average of its payroll, property and gross income percentages, which look to a New York office, branch or agency (20 NYCRR 132.15(c) to (f)). Any overlap between California and New York on one placement therefore comes from New York's partnership rules and the books, not from a headquarters reading of California's regulation.

Texas. Receipts from each service performed in Texas are Texas receipts (Tex. Tax Code section 171.103(a)(2)). Under 34 Tex. Admin. Code section 3.591(e)(26), gross receipts from a service are sourced to the location where the service is performed, which is where the taxable entity's personnel or property are doing the work the customer hired the entity to perform. The rule adds: "Activities that are not directly used to provide a service are not relevant." When one charge covers services performed inside and outside Texas, the Texas receipts are measured by the fair value of the services performed in Texas. On those words the Comptroller could assert a Texas share if Texas-based personnel did work directly used to provide the placement service, such as account management, scheduling or supervision. The worked example assumes none. A Texas-based staffing business whose consultants work elsewhere has those placements removed from its Texas receipts, while the other state's market rule claims them. No throwback rule (assigning receipts that a destination state does not tax back to the origin state) or throwout rule (dropping such receipts from the calculation) for service receipts was reviewed in any state.

Timing and cure: voluntary disclosure and qualification

Voluntary disclosure programs let a business that has not filed come forward before a state contacts it, and in some states registering or filing first ends eligibility. California's program has two statutory pieces. To qualify, the entity must give a full statement of its activities for the six preceding taxable years (Cal. Rev. and Tax. Code section 19192(a)(1)(D)). The limit on assessment is the six taxable years before the agreement is signed (section 19191(d)(1)(A)(i)). The entity must never have filed with the FTB, must have received no prior inquiry, and must come forward before the FTB makes any unilateral contact. The program excludes an entity that is organized in California, is qualified or registered with the Secretary of State, or maintains and staffs a permanent facility in California (section 19192(a)(2)(A)). On those words the LLC in the example below qualifies only if it has never filed, has never been contacted and is not registered with the Secretary of State.

Qualification to do business with a secretary of state is a separate step, triggered by repeated and successive transactions of business in the state (Cal. Corp. Code section 17708.03(a)). The statute does not decide the contacts that subject an LLC to taxation (subdivision (e)). Qualification and tax nexus are not the same question, but the order of steps matters because a filing or registration can end eligibility for disclosure in states with similar exclusions. California is the state reviewed on that point; other states were not reviewed.

A worked example

Facts (invented). A Texas limited liability company taxed as a partnership (the LLC) places information technology contractors, who are its W-2 employees, at client sites in other states. It has three individual members, all Texas residents, and no offices outside Texas. In 2026, a year to which the amended California regulation applies, it places 14 employees at $12,000 per employee per month. The example assumes that the consultants' work is the service sold and no Texas personnel perform any part of it; that each statement of work names the client site and the timesheets record the hours there; that the New York site is outside New York City; and that the LLC has never filed in any placement state except Texas, has never been contacted by any state and is not registered with a secretary of state outside Texas.

Step 1: placements and billings.

• California: 4 employees for 6 months, 4 times 6 times $12,000 = $288,000.
• New York: 3 employees for 9 months, 3 times 9 times $12,000 = $324,000.
• Pennsylvania: 3 employees for 4 months, 3 times 4 times $12,000 = $144,000.
• Washington: 2 employees for 2 weeks (0.5 month), 2 times 0.5 times $12,000 = $12,000.
• Michigan: 2 employees for 3 weeks (0.75 month), 2 times 0.75 times $12,000 = $18,000.
• Total: 14 employees and $786,000.

Step 2: income, franchise and business tax. Each state separates what falls on the LLC from what falls on its three members.

• California: the LLC is doing business through employees actively engaged in its work in the state, files the return and owes the $800 annual tax. Its fee is measured by its California-assigned billings, because a staffing business has gross income from services and no cost of goods sold. Under the amended regulation the statements of work and timesheets indicate California, so the $288,000 is presumed to be California receipts. That amount falls in the bracket of $250,000 to under $500,000, so the fee is $900 and the total is $1,700. The fee is estimated and paid by the 15th day of the sixth month. Each nonresident member is taxed on the California-source share, either through an agreement to file and pay or through a payment by the LLC (Cal. Rev. and Tax. Code section 18633.5(e)). Withholding on distributions (section 18662) was not reviewed.
• New York: the LLC files a partnership return (Form IT-204) because it has income from New York sources. Its filing fee is $175, because its gross income is more than $250,000 but not over $500,000 (here $324,000). It pays estimated tax on behalf of the three nonresident members, except for a member whose estimated tax does not exceed $300 (N.Y. Tax Law section 658(c)(3) and (4)). The members' shares are not stated, so that tax is not computed. Three employees over nine months is a continuing activity that meets the permanency and continuity words of 20 NYCRR 132.4(a)(2). A staffing LLC that bills by placement allocates from its books first. The office-based formula applies only if the books do not disclose the New York share, and the LLC has no New York office for the formula to reach. Each member files Form IT-203 as a nonresident, a form not read in the sources reviewed, and the members' nonresident returns were not reviewed.
• Washington: two employees in the state for two weeks meet the employee route. The $12,000 does not meet the $100,000 receipts route. The 2026 presence is a nexus fact for 2027 as well. The LLC's business and occupation tax falls under the service and other activities classification; the amount is not computed. The members owe no Washington income tax for 2026, because the new tax on adjusted gross income over $1 million begins January 1, 2028. Its reach to nonresidents was not reviewed.
• Michigan: the corporate income tax does not reach the LLC, because an LLC taxed as a partnership is a flow-through entity and not a taxpayer under that act. What the members owe, through their own nonresident returns, a composite return or the elective entity tax, was not reviewed. A corporate member would face the nexus test in Mich. Comp. Laws section 206.621(1); the example has none. The $18,000 is below the $350,000 receipts route in that test, which matters only to a corporation.
• Pennsylvania: the LLC owes a partnership return and nonresident partner withholding (72 P.S. section 7324); the return duty under section 7335(c) was not reviewed. Each member has a nonresident return for Pennsylvania-source income. The sales tax license is in Step 3.
• Texas (home state): the LLC is assumed to be a taxable entity for the franchise tax (Tex. Tax Code section 171.0002 was not reviewed). Its total revenue of $786,000 is below the $2,650,000 no-tax-due threshold for report years 2026 and 2027, so no tax is due and it files the Public Information Report. The members owe nothing in Texas on this income. The Texas receipts are those from services performed in Texas, and on the stated assumption none of the $786,000 is.

Step 3: sales tax.

• Pennsylvania: the three employees report for and perform work in Pennsylvania, so the $144,000 is within the help supply definition. The LLC needs a license before the first placement, because its employees are its representatives located in the Commonwealth and it engages in the activity as a business there. The $144,000 also exceeds the $100,000 route. The base is the service fee, gross fees less separately stated employe costs, or the gross $144,000 if the invoices do not itemize those costs. No tax amount is computed, because the rate was not reviewed.
• California: staffing fees are not a sale of tangible personal property, so no sales tax applies to the $288,000 in 2026, and the 2027 digital products change does not add services on the words reviewed.
• New York, Washington and Michigan: the taxability of staffing fees was not reviewed and is not stated.

Step 4: one placement's fee. One employee works 6 months at a client's California office, and the client's headquarters is in New York. The fee is 6 times $12,000 = $72,000.

• California's amended regulation: the statement of work names the California site and the timesheets record the hours there, so the contract and the books indicate California and the $72,000 is presumed California receipts, subject to rebuttal by a preponderance of the evidence. The New York headquarters address is reached only at the billing-address step, so it does not move the $72,000.
• Texas: the service was performed in California and, by assumption, no Texas personnel perform part of it, so none of the $72,000 is Texas receipts.
• New York: the LLC is a partnership, so its books come first and assign the placement to California; the office-based formula, which looks to a New York office, would reach nothing because the LLC has none. A corporate taxpayer would look to where the benefit is received under the customer-location rule; the LLC is a partnership, so that rule is not applied.

On these facts California alone claims the $72,000, and Texas places none of it in its base. The states can still differ. California's presumption can be overcome by evidence, and New York's treatment of a partnership depends on whether the books disclose the share. The example leaves out three things: the hours-based split that a contract with a different statement of work would force, New York City taxes, and every state in which the LLC does not operate.

Practice notes

Map every placement by employee, state, start date and end date, and treat the start date as the presence date in Washington, California and Texas, where the text supports a first-day reading. Record the length of each placement in New York, where permanency and continuity decide, and the number of days in Michigan and Tennessee. Test income and franchise tax nexus separately from sales tax, and record the source of the rule for each state. Identify the entity type first: Michigan's corporate test does not reach an LLC taxed as a partnership, so record the owners' own returns. Check whether a state taxes the staffing service at all before registering for sales tax: Pennsylvania, Connecticut, New Mexico and Hawaii do, and California and Ohio do not.

Where a state's voluntary disclosure program excludes entities already registered or contacted, evaluate disclosure before registering or filing in that state. A first-year California LLC has no preceding-year fee against which to test the penalty exception in Cal. Rev. and Tax. Code section 17942(d)(2). The statute's words do not say what the comparison is for a first year, so size the estimate on the expected current-year fee. Keep the contracts and books that show where the client receives the benefit and where the employee works, because California's regulation looks to them first. Keep qualification with a secretary of state on a separate track from tax registration. G&G State Tax Group advises staffing businesses and their owners on multistate nexus, registration and disclosure alongside its state and local tax practice.