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Expert Answers to Biz Questions

Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz.

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Is It Worth Registering Your Business In Another State?

 

Some business owners choose to register their business in another state. For example, an executive who lives in California might decide to register the company in Washington or Nevada.

 

The reasons may vary, but saving money is usually the top motivating factor. For instance, some states offer tax advantages for small firms, so you can keep more of your revenue.

 

Washington, for example, has no personal or corporate state income tax, compared to California, which has the highest taxes in the nation. Another reason a business owner might register the company in another state is because you have to.

 

When out-of-state transactions meet certain specifications, a company is conducting intrastate business and is required to register in that state.

 

What qualifies as conducting intrastate business?

 

According to FindLaw, a firm meets the requirements of intrastate business when it has “a physical presence in a state or repeatedly engages in business transactions in that state….” Find Law explains that most states weigh the following factors to determine whether intrastate business is taking place:

 

  • The business owns or rents property in another state
  • The business uses a warehouse in another state to ship merchandise
  • The business employs people in another state

 

There are some exceptions. Mail order and telephone sales are exempted when they are the only types of transaction conducted by the company. National advertising campaigns, independent contractors who get a 1099, court appearances, and holding a bank account for collecting debts are exempted as well.

 

Every state has different guidelines and paperwork

No national form exists to grant permission to do business in multiple states. You’ll need to fill out individual paperwork for each state you wish to register with.

 

The process is generally the same with a few differences that vary state by state. When you register your business, you’ll pay a fee in the range of $100 to $300. You might also be required to publish a notice in a local newspaper for another small fee.

 

Then, you’ll typically need to designate a registered agent to receive legal documents in the name of your business. The registered agent must be an individual or a company that legally resides within the borders of that state.

 

For example, every Texas LLC is required to have a registered agent that has a physical street address in Texas. The agent’s name and address become part of the public record and are available on the Secretary of State’s website.

 

The registered agent must be available during regular business hours and be able to receive and sign for legal correspondence and file reports with the Texas Secretary of State.

 

Consequences for not filing correctly

States impose late fees and penalties for businesses that don’t follow the rules. You could be subject to fees in the thousands of dollars if you’re not careful.

 

Another consequence is that most states allow courts to dismiss legal actions filed by an unqualified entity. For example, if you’re doing business in another state without a proper license, and you try to sue someone, the court may dismiss your case. To bring suit again, you’d need to register your business, pay a late penalty, and file the lawsuit again.

 

Income tax will get complicated

Registering a business in another state means you’ll need to pay income tax on whatever profits you generate in that state. Forming an LLC might be the smartest way to go if you’re going to conduct intrastate business. When you’re an LLC, you might be able to receive a credit from your state of residence for any income taxes you have to pay in another state.

 

Are you ready to pay multiple state taxes?

Conducting business in multiple states means you’ll have to pay state taxes in each of them. This can get confusing if you’re not a trained tax professional.

 

You won’t have to worry about anything if you hand off your tax filings to your CPA every spring, but if you prefer to do your own taxes, you’ll need to understand what you’re signing up for when you attempt to conduct intrastate business.

 

Get a license if you need one

If you don’t have to file in another state but think you want to, first make certain you will save the money you expect to before making the move. Weigh the tax breaks against the expense of a registered agent and other potential fees.

 

Knowing when it’s necessary to register your business in another state is critical. Conducting operations in another state without a license may risk violating the law.

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