State Taxes in the United States: What You Need to Know If You Do Business From Abroad

When you think about taxes in the United States, the IRS and federal taxes usually come to mind first. But if you want to operate seriously in this country — whether with a company, an online store, or professional services — understanding state taxes is just as important.

Each state has its own rules, its own rates, and in many cases its own forms and procedures. And if you don’t take them into account from the beginning, you may end up paying too much, filing incorrectly… or accumulating debt without even realizing it.

In this article we explain, in plain language, what state taxes are, what types exist, how they relate to local taxes, and what you should keep in mind if you are a foreign entrepreneur wanting to start or already operating a business in the U.S.

What Are State Taxes?

State taxes are those collected by each U.S. state independently of the federal government. This means that in addition to your obligations with the IRS, the state where you operate or generate income may impose its own taxes on:

• Income (personal or corporate)
• Sales (sales tax)
• Property (real estate or certain assets)
• Other specific concepts depending on state legislation

Not all states collect all of these taxes. Some have no state income tax, others have high rates, and others balance low income tax with strong taxes on sales or property.

That is why choosing the state where you register your business is not just a legal decision — it is also a strategic fiscal decision.
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Difference between federal, state, and local taxes

To get the full picture, it’s important to distinguish the three levels:

Federal taxes:
Collected by the U.S. federal government through the IRS. They apply nationwide, with uniform rules across the country (for example, the federal income tax).

State taxes:
Set by each state. These may include state income taxes, sales taxes, and other types of taxes. Rates and exemptions vary from one state to another.

Local taxes (county/city):
In many cases, counties and cities add their own taxes on sales or property, which are applied on top of the state taxes.

If you sell in a state with a sales tax, for example, you may end up charging the customer a combined rate made up of the state tax + local tax.

Most common types of state taxes

1. State income tax‍

Many states charge an additional income tax on top of the federal tax. This can affect both:

• Individuals who reside in or generate income within that state.
• Businesses that operate or have “nexus” (economic or physical presence) in that territory.

Key points that matter if you’re a foreign entrepreneur:

• Not all states have a state income tax.
• Some apply flat rates; others use progressive brackets.
• You may need to file in a state even if you live outside the U.S., if your business generates income attributable to that state.

This is why, when you set up a business in the U.S., it’s not enough to look only at IRS requirements—you also need to review whether the state where you establish your company charges state income taxes and how they apply to you.

2. State sales tax‍

Sales tax is one of the most visible state taxes in day-to-day life:

• It applies to the sale of goods and certain services.
• The final consumer pays it, but the seller is the one who collects and remits it to the state.
• The rate varies by state, and often an additional local (city or county) tax is added.

If you sell physical products or taxable services to customers in a state where this tax exists, you will likely be required to:

• Charge sales tax to the customer.
• File and remit it periodically to the state.
• Maintain clear records of your sales, the rates applied, and payments made.

More and more, states also regulate online sales and may require a business with no physical presence—but with a certain volume of sales in that state—to collect and remit state sales tax.

3. State and local property taxes‍

In the United States, property taxes (especially on real estate) are often managed at the local level (city or county), but they are considered part of the broader state and local tax landscape that can affect your operations:

• They apply to those who own houses, offices, warehouses, or land.
• They are usually calculated based on the assessed value of the property.
• They represent a recurring cost that impacts cash flow if the company acquires real estate.

If your strategy includes real estate investment or buying facilities in the U.S., these taxes must be factored into your projections from the beginning.

State tax refunds and how they affect you‍

In some cases, you may receive state tax refunds (for example, because you overpaid or because the state implements special refund or support programs).

In general:

• If you took the standard deduction on your federal return, many state tax refunds are not considered taxable income at the federal level.
• If you itemized deductions and deducted state taxes paid, part of the refund may have to be reported as income.

Although the exact treatment is evaluated case by case, what matters is understanding that state taxes—and their refunds—can also affect your federal tax picture and should be recorded properly.
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How to File and Pay State and Local Taxes

Each state has its own tax authority and its own channels to file and pay state taxes:

• Online forms and platforms for state income tax.
• Specific portals to register your business, file, and pay sales tax.
• Revenue departments or offices where you can request information, assistance, or clarification.

In many states, you’ll also find:

• State-level taxpayer advocates who help you understand your rights and resolve disputes.
• Guides in Spanish and phone lines to answer basic questions about state and local taxes.

What You Should Know if You Are a Foreign Entrepreneur Operating in the U.S.

If you live outside the U.S. but want to sell, invoice, or set up a business there, state taxes can significantly change your real scenario:

• The state where you register your company may not be the same state where you pay sales tax or income tax.
• You may have obligations in multiple states if you sell to customers in different jurisdictions and meet certain thresholds.
• Your decisions on business structure, type of activity, and sales channel (online, marketplace, services) determine which state taxes apply and where.

Common mistakes include:

• Focusing only on the “trendy” state to form a company without reviewing its state tax rules for your business model.
• Ignoring local sales taxes when selling online.
• Failing to properly register the business at the state level, which can result in penalties, interest, or future restrictions.

Best Practices for Managing State Taxes

If you want to avoid surprises, here are some basic practices that help a lot:

• Be clear about which states you sell in and from which state your company operates.
• Verify whether your products or services are subject to state sales tax.
• Maintain clear records of income by state and type of operation.
• Do not assume that being outside the U.S. means state taxes do not affect you.
• Align the choice of the state where you register your company with your fiscal and operational strategy, not just with marketing trends or the popularity of a particular state.
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Frequently Asked Questions About State Taxes

1. Do all U.S. states charge state income tax?

No. Some states do not have a personal state income tax, others apply it to individuals but not to certain entities, and others tax both personal and corporate income. That’s why choosing the right state is so important.

2. If I have a company in a state without income tax, am I exempt from state taxes?‍

Not necessarily. Even if a state has no income tax, it may have:

• State sales tax
• Property taxes
• Specific state fees or charges depending on the type of activity

Additionally, if you sell to other states, you may generate tax obligations there as well.

3. Do state sales taxes apply only to physical stores?‍

No. More and more states apply sales tax to online sales and remote transactions if certain volume or economic presence criteria are met. Even without a physical location, you may be required to collect and remit sales tax in specific states.

4. How do I know which forms to file for my state taxes?‍

It depends on the state where you operate and the type of tax:

• State income tax returns (for individuals or businesses)
• Periodic sales tax filings
• Specific forms if you have employees or real estate

The best approach is to review the official website of the state’s tax authority and, most importantly, structure your company correctly from the start so your obligations are clear and manageable.

Want state taxes to work for your strategy instead of against it?‍

State taxes are a key part of the U.S. tax landscape. Ignoring them can be costly; integrating them intelligently into your structure can make your business much more sustainable.

At Openbiz, we help you create your company in the United States and organize the administrative and tax aspects in a way that aligns with your goals and with each state’s rules. If you want to operate in the U.S. with clarity, minimize risks, and make the most of this market’s advantages, contact us—we’ll guide you step by step through the process.