Hiring remotely is great for talent. It can also quietly pull your startup into new tax obligations — even if you’re pre-revenue or running losses.

The Bottom Line

Remote teams create leverage - and tax complexity.The goal isn’t to fear it. It’s to stay ahead of it.

If you’re hiring across states (or plan to), a quick review now can save:

• Thousands in penalties
• Fire-drill cleanups

Stress during diligence or fundraisingHere’s what actually matters

What Triggers a State Tax Filing?

You generally don’t need to “make money” in a state to owe taxes there. Most states care about nexus — a fancy word for connection.

The biggest nexus triggers:

Employees

One full-time, part-time, or contractor in a state can create:

• Payroll withholding obligations
• State income/franchise tax filings
• Local tax filings (in some states)

Office or Property

• Office address
• Co-working space
• Home office used regularly
• Equipment or inventory stored in-state

Sales Activity

• Material revenue from customers in a state
• Economic nexus thresholds (often based on $ revenue or # of transactions)
• Common for SaaS once you scale

You don’t need all of these.

One can be enough.

“We’re Losing Money — Why Would We Owe Tax?”

This one surprises founders the most.

Many states charge minimum or franchise taxes even if you’re unprofitable.

Examples founders hit early:

California

• $800 annual franchise tax (even at a loss)
• Payroll presence alone can trigger it

New York

• Filing obligations + fixed minimum taxes
• Nexus can be triggered by employees or meaningful sales

Delaware

• Franchise tax for corporations
• Required annual filings even with no activity
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So yes — you can be cash-flow negative and still owe state taxes.That’s normal. And avoidable with planning.

Common “Oops” Moments We See

• Hiring a remote employee without registering in their state
• Not withholding state payroll taxes correctly
• Discovering 2–3 years later that filings were required
• Getting notices before a fundraising or acquisition
• Paying penalties that could’ve been avoided with setup decision

Awareness beats perfection — especially early.

How Good Planning Saves Real Money

Smart founders think about where they hire and how they structure before scaling.

A few examples:

• Registering only where you actually need to
• Timing registrations to avoid unnecessary minimum taxes
• Understanding when contractors vs employees change obligations
• Coordinating payroll, bookkeeping, and tax filings from Day 1
• Multi-state tax isn’t about being perfect.

It’s about not being surprised later.

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Need help?

Try Fondo ⚡

Disclaimer

This blog for informational purposes only and does not constitute legal or tax advice or create an attorney-client relationship. Companies should consult their own attorneys or tax accountants for advice on these issues. Because of the generality of the issues discussed in this piece, the information provided may not apply in all situations and should not be acted upon without specific legal or tax advice based on particular situations.

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