The COVID-19 pandemic has fundamentally altered the way American companies do business. Management everywhere has adopted policies and procedures designed to ensure continuous operation and public safety. The resulting shift to a largely remote work environment has stretched the capacity of compliance systems in every American industry. At the same time, economic uncertainty has resulted in tightening budgets and cost cutting. One thing is clear: companies are finding new reasons to focus on compliance while keeping an eye on tightening budgets. 

To stay in compliance with complex legal entity, registered agent, tax, and licensing requirements, businesses need a reliable partner. Among the top solutions for medium-sized businesses, professional service firms, and nonprofits is Harbor Compliance. Harbor Compliance provides nationwide registered agent representation, services to assist with corporate lifecycle and tax registration filings, managed business license solutions, and purpose-built compliance software. Supported by a team of experts and a proprietary database, Harbor Compliance offers its clients the compliance insights and the peace of mind needed to do business in uncertain times.

Crossing Borders Means Ensuring Compliance

2020 has seen a dramatic increase in remote work arrangements among U.S. employers. Companies with employees, clients, and operations in a close geographic area find their nexus suddenly broadened, often into multiple states. This has triggered a slew of legal, entity, and tax compliance issues. Here are just three considerations:

1.    Hiring Employees? Register Proactively

One positive outcome of remote work is that companies can now hire top talent across the country. Companies hiring an out-of-state employee for the first time should take proactive steps to register before the employee officially starts. Specifically, the legal entity may be required to register as a foreign (out-of-state) business with the secretary of state, then file to open employer withholding and unemployment tax accounts. 

Logistically, the process of submitting registration materials and receiving tax identification numbers can take several weeks. By researching state requirements and proactively filing, businesses can onboard new employees faster. 

Keep in mind that even businesses with existing employees who are now working remotely in other states may trigger tax nexus. Employers should review the working arrangements of each employee, and take steps to register with the appropriate agencies in those states.

2.    Selling Products? Ensure Sales Tax Compliance

In the wake of South Dakota vs. Wayfair, Inc., many states implemented a tax on the online sales of products, regardless of whether the seller has a physical location in that state. The COVID-19 pandemic exacerbated the issue, with more companies than ever moving to offer their products online. While this may be a good way to maintain profitability and even expand their customer base, companies should be aware of triggering sales tax nexus in states where their end customers live.

The thresholds for nexus vary greatly by state, as does the process to open state sales and remote seller accounts. Management should carefully review whether their existing and planned activities trigger the need to register, and follow through proactively. Just like hiring an out-of-state employee, the process of opening state sales tax accounts and registering as a foreign entity can take several weeks.

3.    Out of Office? Ensure Registered Agent Compliance

Every state requires business entities to maintain a registered agent. The role of the registered agent is to receive service of process and other legal notices on behalf of the represented business and forward them to the appropriate parties. Missing a time-sensitive legal document can lead to costly consequences for the business. 

As companies register in new states to hire and retain employees, comply with sales tax requirements, or to engage with customers, they will need to appoint a registered agent with a local address. While most states allow the company to designate an individual as the registered agent, management should consider using a nationwide registered agent service provider. This ensures consistent representation and reliable receipt of service of process as the company grows. Using one registered agent provider also simplifies your vendor management and accounts payable.

Management should also review their company’s registered agents where they are already registered to do business. As part of this self-assessment, companies often discover outdated individuals and addresses in state records. With many non-essential employees working remotely, management may even discover a company address listed in state record with no one physically present to receive legal documents. Thankfully, registered agent information can be updated with a brief change filing with the secretary of state’s office.

Crafting a Strategy for Success

Running a compliant business at any time, much less during a global pandemic, requires a strategic vision and top-down buy in. Most importantly, management should secure any necessary state registrations in alignment with their business development forecast. In other words, plan now and act, rather than miss an opportunity. 

In addition, management should establish policies to ensure compliance, which may include clearly defining the roles of employees and vendors responsible for research, registrations, reporting, and maintaining information and records. Companies might even consider investing in compliance software to ensure critical data are centralized, secure, and within the full oversight of management.

Overall, companies can overcome the compliance challenges presented by COVID-19 with a proactive approach to understanding and managing state requirements. Additionally, companies should reassess any compliance vendors as part of their efforts to meet tightening budgetary requirements. As compliance moves into the limelight, management can make intelligent decisions and strategic investments to ensure continued operations and to drive profitability.

Harbor Compliance does not provide tax, financial, or legal advice. Use of our services does not create an attorney-client relationship. Harbor Compliance is not acting as your attorney and does not review information you provide to us for legal accuracy or sufficiency.

James Gilmer is a Compliance Specialist at Harbor Compliance, a leading provider of compliance solutions for companies of all types and sizes. Founded by a team of government licensing specialists and technology trailblazers, Harbor Compliance has helped more than 25,000 organizations apply for, secure, and maintain licensing across all industries. James is passionate about helping nonprofit organizations leverage compliance to enhance their fundraising and program activities and educating the sector on compliance issues. James is also a Co-Founder of Berks Sinfonietta, Inc., a nonprofit chamber orchestra located in Reading, Pennsylvania.