As companies grow their operations become more complex and they must constantly make changes. Startups prioritize speed and solving the most important problem, even if it is in exchange for future liability. A useful framing is to think of it as moving between two states—operating ignorance and normalization.
Operating ignorance is both real ignorance or intentional. For example, a startup may hire someone in another state and not realize they need to register with the state’s employment agencies (real ignorance). Or they may willfully ignore employment requirements for now because the likelihood of being audited is low and they accept paying fines at a future date is not worth the short term hassle.
Normalization is putting these operations into compliance and doing it right. To reuse the example about employment, the company decides it is time to do the proper registration, pay back taxes and fines, and operate in compliance.
See also:
- Back office
- Employers of remote workers are unsure they are remitting taxes correctly they may decide it’s not worth figuring it out right now.
- It takes two months to hire in a new country so a startup may knowingly misclassify someone as a contractor.
- Remote native companies don’t have real addresses so a startup might use a different address they won’t actually receive mail.
Links to this note
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The National Nexus Program Standardizes Voluntary Disclosure Agreements to Pay Back Taxes
Each State has a process administrating a Voluntary Disclosure Agreement to pay back taxes. The Multistate Tax Commission runs a program to standardize the VDAs and make it easier for companies to meet their tax obligations and pay back taxes.