Doing Business in Multiple States-When Does Your Company Have to Register?

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Establishing a separate legal entity is step one in separating your and business assets. The next step is to make sure you are in compliance, which can mean many things including compliance from a Secretary of State level, to compliance from a business credit level to compliance at a state taxation level (and federal). All areas are very important. Let’s discuss an area that is not often discussed until it is too late and that considers the multistate taxation rules which will help determine which states your entity will need to register to do business.

In our industry, where Nevada and Wyoming corporations are promoted this is the reason why benefits such as saving state corporate income taxes or privacy rarely comes into play because if you live and do business in another state, the Nevada entity will need to foreign register to do business in that state. At your state level, there may be state taxes and your name and information is probably going to be more exposed. Two important points, first if you are operating as an LLC taxed as an S corporation for example, it is a flow-through entity with no federal taxes paid and in many states, no state taxes. An informational return is required to be filed at the federal and state level (in most cases) and the tax is paid at the owner’s level. This comes into play when someone says, “I live in Arizona and I want a Nevada LLC taxed as an S corporation to save state corporate taxes here in Arizona.” There is not any state taxes on LLCs taxed as an S corporation in Arizona anyway. This is typically promoted in relation to a C corporation which has state corporate taxes in most states but usually is the wrong entity for the small business owner (because of double taxation and the goals of the small business owner, especially a home-based business owner is to have low overhead and high-profit margins). The second point is that privacy is many times overrated because I find there is a common pattern to strive for so much privacy and the basic asset protection is missing. Most do not think it through with capitalization, issuing ownership interest…

Back to the subject at hand, when does your company have to foreign register or qualify to do business in another state? There are two ways to look at this, what does the state say about this at the Secretary of State level and more specifically what does the multi-state taxation rules say about it?

Each state has some basic rules that may help in determining what is considered doing business in their state and therefore state taxes may be due. Let’s take a look at California and Texas. California is one of the highest taxed states in the country. They have an annual $800 minimal franchise tax fee that applies to all entities (there is an exception in year one for corporations). California has a state tax rate for all entities and that is why they spend more time on the California Franchise Tax Board website to let you know what is considered doing business. On this site, https://www.ftb.ca.gov/businesses/faq/734.shtml, the California Franchise Tax Board defines doing business in California as ‘doing business’ means actively engaging in any transaction for the purpose of financial gain. That is a very wide interpretation of what is considered doing business.

Texas does not have a state corporate income tax but they have a franchise tax. The franchise tax is a privilege tax imposed on corporations, including banking corporations and limited liability companies that are chartered in Texas. The tax is also imposed on non-Texas corporations that do business in Texas. The Texas Franchise Tax fee is just a fancy name for state income taxes. But from a marketing point of view if the state can promote it has no personal income taxes and hit the businesses harder that may help them from a political point of view. If you are doing business in Texas, like owning real estate by itself will trigger the Texas Franchise tax fee which Corporations pay the greater of the tax on net taxable capital or net taxable earned surplus. There are two approaches, one is the taxable capital of a corporation’s stated capital (capital stock) plus surplus. Taxable capital for an annual report is based on the end of the corporation’s last accounting period in the calendar year prior to the calendar year in which the report is due. The tax rate on taxable capital is 0.25 percent per year of privilege period. Earned surplus for an annual report should be reported beginning with the day after the ending date on the previous franchise tax report and ending with the end of the corporation’s last federal accounting period in the calendar year prior to the calendar year in which the report is due. The tax rate on earned surplus is 4.5 percent.

There is an easy way that the California Franchise Tax Board will determine if you are doing business in California, they will subpoena your business credit card and look at where the transactions take place. If they are all in California for example, and you formed a Nevada LLC and did NOT register to do business in California you will be subject to the California franchise tax fee plus penalties and interest. From California’s point of view, if you were doing business in Nevada and lived in California, most of your expenses should be where you are doing business. This is a good rule of thumb for any state. Does this mean anytime you go into another state your LLC or Corporation will have to foreign register? No. But more times than not you may be doing business in another state and not be realizing it and be subject to state taxes. The best way to blow this is to hire employees in another state. If you do that the entity will need to foreign register and pay taxes in that state. You may be thinking is having independent contractors an exception? Yes, that does not constitute doing business in another state. Does that mean the solution is just to have independent contractors only work for your company outside your state? No. You must follow the IRS’s test for employees vs. independent contractors. Don’t wait until it is too late to find out you really have employees working for you! Here are the tests: https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation

When I started NCP back in 1997, several times during the first two years went to speak to Deloitte, the big global tax firm and invested $400-$600 per hour to understand these basic concepts because no one in our industry was addressing these issues or concerns.

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U.S. Company Formation FAQs

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When you are forming a U.S. company there are some important FAQs (frequently asked questions) you should be asking before you get started:

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• Which entity is best to operate in the U.S.? Is it an LLC (limited liability company). If so, do you know how it is taxed? There are three options for you if outside the U.S. There are several factors that must be discussed including your gross revenue and net profits, goals with those profits, are partners involved, tax treaty with your country…

• Should you ever consider doing business in your own name? Operating a business as a sole proprietorship in your name is an option, it is low cost and in some situations a good starting point to “test” if your U.S. business will get off the ground. Long term there is too much risk with this business structure and for some industries too much risk even as a starting point.

• Which state is best for your situation (Nevada, Wyoming or Delaware)? What are the factors to consider besides state filing fees or state tax rates? Do you know any court history and which one will offer the best liability protection? Which one has the best U.S. economic benefit to your business?

• What are the U.S. tax rules for a corporation vs an LLC? A C corporation may have lower tax rates but it may not be best for your overall situation. On the other hand, an LLC taxed as a partnership will trigger three U.S. tax returns, which may not be bad overall, but it is something to consider.

• What are the U.S. tax treaties with your home country? Even if there is a tax treaty with your country is there a type of U.S. entity that may not be recognized in your home country?

• With a U.S. company will you need a work VISA?  Planning to come to the U.S. and now you have a U.S. company the key is not to mess up at the U.S. boarders! If you are planning to secure a work VISA in the future do you know which are the best options at the lowest cost?

The goods news is when you work with NCP as a client we will address all these FAQs plus you will have access to our professional resources as needed.

Take the next step to form a U.S. company with NCP and send us an email at support@launchwithconfidence.com or call us at 001-702-367-7373.

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How to Establish a U.S. Company & Bank Account (without coming to the U.S.)

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In the past you have contacted us about forming a U.S. company. Perhaps that was to open a U.S. merchant account, invest in U.S. tax liens or deeds, or perhaps you are selling on Amazon FBA to the MASSIVE $183 BILLION spent by U.S. consumers online this year.

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If you still have a need or if you have already forming a U.S. company (and want to know if things were established properly) I have a brand new free report that will walk you through all the steps to PROPERLY form a U.S. company AND bank account (which is very difficult as you probably know …and a real bank account).

Go ahead and grab my BRAND NEW REPORT (it’s free and you will have immediate access to the download).

How to Establish a U.S. Company & Bank Account (without having to travel to the U.S.)

To download your free copy now, go to http://budurl.com/USEntityLaunch 

After you download this free report today you will learn how to establish a COMPLETE U.S. Company & U.S. Bank Account quickly. This information-packed 17 page report tells you everything you need to know to launch your U.S. business with confidence.

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How to Establish a U.S. Company & Bank Account (without coming to the U.S.)

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Are you outside the U.S. looking to form a U.S. company?

Perhaps you are looking to open a U.S. merchant account, invest in U.S. tax liens or
deeds, or perhaps you wanted to market your online business to the MASSIVE
$183 BILLION spent by U.S. consumers online this year.

If you still looking to establish a U.S. company I have a brand new free
report that will walk you through all the steps to PROPERLY form a U.S.
company AND bank account (which is very difficult as you probably know …and
a real bank account).

Go ahead and grab my BRAND NEW REPORT (it’s free and you will have
immediate access to the download).

 How to Establish a U.S. Company & Bank Account (without having to travel to
the U.S.)

After you download this free report today you will learn how to establish a
COMPLETE U.S. Company & U.S. Bank Account quickly. This information-packed
17 page report tells you everything you need to know to launch your U.S.
business with confidence.

Need support with the formation of a U.S. company? Send me an email at
support@launchwithconfidence.com.

To download your free copy now, go to http://budurl.com/USEntityLaunch

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You have an 87% Chance of Forming the WRONG ENTITY…

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Which entity type gives you the BEST protection for your business and personal assets? Which one helps you pay the lowest legal taxes now and later? Here are the most common options:

1. Sole Proprietorship

2. C Corporation

3. S Corporation

4. Limited Partnership

5. LLC Taxed as a disregarded entity

6. LLC Taxed as an S corporation

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The Top 5 Mistakes to Avoid when Establishing a U.S. Company

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Forming a U.S. company will help you develop trust with the $163.8 Billion online market.
The challenge is that you MUST properly establish a U.S. company to take advantage of this
huge opportunity.

Let me share with you The Top 5 Mistakes to Avoid when Establishing
a U.S. Company:

1. Selecting the wrong state for their entity. You may know that the big
three are Delaware, Wyoming and Nevada. But what is best for your business
from a state tax point of view? Did you also consider which state provides
the best liability protection for you as a manager of an LLC or the
director or officer of a corporation? Nevada is by far the best and offers
the best value. Yes, Wyoming may be $400 less on the front end but with
less protection is that worth it? If your U.S. business is raising capital
or going public Delaware may not be a bad option.

2. Selecting the wrong type of entity for their business. If you go online
and invest $99 for a formation and guess as an LLC and don’t understand the
tax ramification or the U.S. tax treaties with your home country you may
end up paying thousands in unnecessary taxes! An LLC may be taxed in four
different methods
(even most American don’t even know that). Each one has
its own pluses and minuses. A corporation may be an option only if you
manage the taxes on an annual basis and don’t do something that will
trigger an audit (like a big year end expense back to your home country to
reduce your U.S. profits).

3. Not having a complete formation. Filing articles, obtaining an EIN and
having a U.S. mail address may get you started but by no means is that a
complete formation.
If that entity was attacked by the IRS or a lawsuit it
would not hold up for 15 minutes, according to U.S. attorney, Lee Phillips.
You must have a complete formation along a legitimate U.S. business address
that sends the proper business message.

4. Not having tax support for their U.S. entity.  Not taking into consider
what type of entity and who should be the owner in the U.S. only means you
are going to be disappointed when you realize how much extra taxes you may
be paying that was unnecessary. We have had clients who have saved $10K,
$20K or $50K or more by working with NCP and through our CPA
recommendations
to operate their U.S. business properly. Some countries
like Canada don’t even have a tax treaty for a U.S. LLC and you may be
double taxed. There is a strategy around that but you must know it up
front.

5. Not working with a company with the best resources to operate a U.S.
business.
Never underestimate the power of working with a company like NCP
with great resources and connections when it comes to U.S. banking, legal,
taxes, merchant accounts, immigration and top business connection to help
your U.S. business succeed! Recently with one legal connection we saved a
client over $20K in legal fees (
from the other U.S. attorney who was going
to take advantage of his situation). That type of resource will add up
quickly to your bottom line.

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