April 21, 2015

Are You Operating Your Business in Multiple States? What You Need to Know

As a small business owner, it can sometimes feel like you’re expected to be an expert in tax and state law. One common area of confusion and misconception is conducting business in multiple states. By law, if your company plans to conduct business in any other states than your state of incorporation (or LLC formation), then you may need to register your business in those states. This process is called foreign qualification.

For example…

  • You have a restaurant in Florida and decide to expand into Georgia and South Carolina. Once you have locations open in those states, you’re doing business there and will need to file a foreign qualification in both Georgia and South Carolina.
  • You incorporated your business as a Delaware LLC, but are physically located in New York. You’ll need to file a foreign qualification to conduct business in New York. (For this reason, it’s often best for small companies with fewer than five shareholders to incorporate in their home state.)
  • You live in Washington and your business partner lives in California. You incorporated your company in Washington, but recently your partner has been finding and meeting with the bulk of your clients near his home in California. You’ll need to file a foreign qualification in California.
  • You’re a consultant who performs the majority of your work online, with clients in multiple states. In this case, you do not need to file a foreign qualification. Just because you’re making money from clients in other states doesn’t mean you’re transacting business there, according to the law.

multiple states

What is meant by “doing business?”

In today’s mobile/virtual world, it can be difficult to know just what constitutes doing business in a state. If you’re uncertain whether your particular business needs to foreign qualify, you should check with your attorney or accountant. However, here are some general questions to answer:

  • Does your LLC or corporation operate out of any physical presence in the state (i.e. office or retail store)?
  • Are you frequently conducting in-person meeting with clients in the state (and not just conducting business via email/phone)?
  • Does a significant portion of your company’s revenue come from the state?
  • Do any of your employees work in the state? Do you pay state payroll taxes?
  • Did you apply for a business license in the state?

If you answered yes to any of these, your business may need to file a foreign qualification in the appropriate state.

What is a foreign qualification?
To register your company in another state, you will need to submit a Certificate of Authority application (sometimes it’s called a Statement & Designation by a Foreign Corporation) with the particular state’s Secretary of State office. You can download the form from the Secretary of State’s website or have your incorporating company handle the filing and requirements for you. Some states will require you to have a certificate of good standing from the state where your LLC/corporation was formed (which means you’ll need to be up to date on your state taxes, fees, etc.).

Why is a foreign qualification important?

Foreign qualifying your company in states where you conduct business is your legal obligation. Failing to properly register your company could result in:

  • Fines and interest for any time when you were not foreign qualified (in addition to paying the standard fees that should have been paid)
  • Liability for back taxes for the time when you were not foreign qualified
  • Inability to sue in a state where you are not registered

You’ll want to foreign qualify in as few of states as possible. After all, with each foreign qualification comes filing and/or annual fees, additional laws to learn, and added paperwork. However, you simply can’t overlook your business’s legal requirement to foreign qualify; it could end up costing you much more in the long run.

53 Comments ▼

Nellie Akalp


Nellie Akalp Nellie Akalp is CEO of CorpNet, her second incorporation filing service based on her strong passion to assist small business owners and entrepreneurs in starting their business. Free guides, advice and videos on small business legal topics are available at her Small Biz Corner.

53 Reactions

  1. Since I do most of my work online for clients all over the country, I’m glad I don’t need foreign qualification. That would be a major pain.

  2. Thanks for the post! Quick question – would a company such as airbnb.com that offers online housing rentals be required to register in each state they offer rentals in? Even if they do not have a physical presence in each state and are based out of CA, they offer professional photos of many of their properties, which requires an employee or contractor to be physically working in that state. Would this classify them as “conducting business” in that state?

    • Hi Rob –

      Thanks for reading my post and commenting!

      Generally speaking a company that offers online services whether it be housing rentals or any other form of service may be required to register in each state they offer services/rentals in if the transaction took place in that state and the income received from those rentals were received in the state they are doing business in. Physical presence in each state is based on where the transaction takes place and where the monies/income are being deposited into…ie state and if one is accepting and exchanging transaction in that stew, that state’s laws will apply and one must register within that state.

      I hope that helps! Should you have questions and want to discuss further, feel free to call directly at 888.752.0363

      Thank you!
      -Nellie

      • Thanks for the response Nellie! So if we offer an online service in a specific state, but do not have a physical location or bank in that state, would that free us from having to register?

      • Hi I am opening a travel camp on the east coast of the U.S., I and my employees are based in New York. My question is if I am considered to be a New York based business or Multi-State business?

      • Hi Chasya,

        Great question. Generally, the business will be filed in the state where the physical business address is located. In most cases, the business will only be required to be registered in the home state, however, depending on how much business is being conducted in other states, or if there are physical locations in those states, some foreign qualification filings may be required. If you have any other questions, please feel free to call my office for a free business consultation at 888-449-2638. You can ask for Katie Hendrix at extension 110.

  3. Hi Rob –

    Thanks for the response.

    Again I cannot give you legal advice, however, the questions’ that you want to ask yourself as follows: even if an online business, where are the servers held, what location? Where are the shareholders located or the employees? The answers will provide you with the answer as to location and which state’s laws will apply. Where are you located and where are you coming up with the ideas to create the business?

  4. If I have an online business with no physical presence in other states but I match students (income paid into my home state) with mentors who maybe located in several other states (that I pay as independent contractors- no taxes withheld). The independent contractors receive one flat rate for services -and all communications occur online, phone, email. No bank accounts in other states, no employees- just independent contractors. Do I need to foreign qualify in the other states? The majority of my business is in home state but I may occasionally get a student needing matching out of state.

    • Hi Jeanette – Thank you for reading and commenting on my post! Unfortunately I cannot give you legal advice on your specific circumstance, however, I can tell you that a foreign qualification is filed for every state a business has a physical location in so the business can operate in that state.

      I hope that helps!
      Happy New Year!
      -Nellie

  5. An educational consultant who works primarily from a home state but goes into other states sporadically (maybe once or twice a month) to meet and advise clients under contract, would they be required to foreign qualify?

    • Hi Kendra,

      Thank you for reading & commenting on my post! Generally speaking, a corporation or LLC will need to foreign qualify their business in additional states if they have locations in multiple states or if they are doing a significant amount of business in multiple states.

      I hope that helps!
      -Nellie

  6. In addition to opening franchised shops in my home state of California, I am considering one or more in Oregon. It appears I can apportion income appropriately to both states for income tax reporting. What are the pros & cons of registering my C-corp in Oregon as a foreign corporation versus creating a subsidiary corporation in Oregon? Are there other, more preferable, options?

  7. Hi Nellie,
    We own a business incorporated in WA State. We are moving our office to OR however no physical work other than the office will be done in OR. Both owners will be residing in OR. Do we need to file a foreign qualification? Thanks, Amb

    • Hi Amb,

      Thanks for reading and commenting on my post. Generally, it is required to file a Foreign Qualification when the business will have a physical presence (business address) in a state other than the state the business is registered in.

      If you have additional questions and would like to chat, feel free to call my team and ask directly for Katie Hendrix and a free business consultation: http://bit.ly/Pt4MVP

      -Nellie

  8. Hi Nellie,

    I’m hoping to start a LLC in Nevada or Delaware for the home to my online storefront. The transacting bank account and business will be in the state of incorporation. Even if my customers live in other states I may be able to avoid filing for Foreign Qualification as my business is conducted in the state of incorporation?

    Thanks,
    Cody

    • Hi Cody,

      Different states have different requirements for Foreign Qualifications. I would recommend speaking with an attorney if you are not sure whether or not this will be required for your LLC specifically.

      Thanks for reading and commenting on my post!
      -Nellie

  9. I am about to launch an online business with a friend of mine but we live in 2 different states. It is strictly online services that we will be providing and there is no storefront. We are getting a bit confused as to the legal matters in terms of which state to register for a tax ID and how to register as an LLC (ie which one of our info do we use) since we are equal partners in this. Help!

    Thanks!

    • Hi Lanna,

      So sorry for my delayed answer. I just noticed your comment!

      This happens more than you’d think! You essentially have your choice as to which state you’d like to file in. I’d probably suggest doing a little research and perhaps even speak with an attorney or accountant in regards to which state best suits your business. If you have any additional questions, please feel free to call my company for a free business consultation. You can ask for Katie Hendrix at 888-449-2638 x110.

      I hope that helps!
      -Nellie

  10. Hello
    I am an LLC in NJ and provide Tech and structure installation services. I occasionally travel to out of state locations and am normally on site for a week or so. I normally dont return to that state more than once a year. Do I have to register as a foreign business in every state I travel to? Thanks for your help

    • Hi Chuck,

      I will start by saying that I do recommend speaking with an attorney regarding this issue, as every state has different laws & regulations. However, generally, a foreign qualification is required if the business does a substantial amount of business in that state, or has a physical location in that state. If you have any other questions, my company specializes in Foreign Qualifications. You can reach out to Katie Hendrix at 888-449-2638 x110 for a free consultation.

      Thanks for reading and commenting!
      -Nellie

  11. I have a Delaware corp that is now running as a virtual company with no employees and no revenues to report. It runs out of my home office. We do have investors that fund specific activities that are performed at contract organizations globally. Do I need to have a DBA in NY any longer.

    • Hi Lee,

      Thank you for your question. DBAs are generally only required if the corporation will be doing business under any name other than the full, legal corporation name. If you have any further questions about DBAs, my company offers business consultations over the phone at no cost. Please contact Katie Hendrix in my office at 888-449-2638 x110, and she would be happy to assist you!

      Thanks!
      -Nellie

  12. I hire contractors to do home rehabs for investors out of Arizona. The properties are in states like Arizona, California, Georgia, and Florida. I live in Texas. My main purpose is to fund these jobs and perform project management duties. Occasionally, I will visit the properties and contractors. Do I have to have my business registered in each state? I don’t receive income in these states, I don’t have offices. I pay the contractors with the money I receive from the investor.

    • Hi Joe,

      Unfortunately I cannot advise you as to qualifying your business in these states specifically, as I cannot give legal advice. However, generally speaking, if a business is operating in a state other than the state of incorporation and has paid employees in such state, generally the state where the employee is located will require the business to qualify as a foreign entity. Mainly for the purpose of paying employee withholding tax in the state where the employee is physically located. I hope this helps. If you have further questions, feel free to call for a free business consultation. Ask directly for Amanda Beren at 805.413.5711|
      -Nellie

  13. Thanks for the helpful write up!

    I own Nevada C corporation that sells apps that I develop online on Apple’s App Store. I created the corp a few years ago while I was living overseas. I’m the only owner and the only payroll employee.

    I am moving to New York City for a year or two. I assume I will need to change the payroll to pay New York payroll taxes? Do you know if I also need to register the Nevada C corporation as a foreign entity doing business in New York?

    The business’s financial transactions consist of incoming App Store payments and outgoing employee (just me) payroll + things like health insurance and 401k plan.

    The only thing I will be doing in New York is working on my laptop from home, coffee shops, or coworking spaces.

    • Hi Manny,

      Generally, if the physical business address is in a new state, or if a significant amount of business is being done in that state, they will require the corporation to be foreign qualified there. As far as taxes, payroll, etc. I would recommend speaking with an accountant or CPA for guidance. If you have any other questions or would like assistance in filing the foreign qualification, please feel free to call my office for a free business consultation at 888-449-2638. You can ask for Katie Hendrix at extension 110.

  14. If I register in Delaware and foreign qualify in California.
    Do I need to open a separate bank account in California also?

    • Hi Jack,

      Great question. All banks will have different policies, so I would suggest contacting whichever bank you plan on using and inquire about what their policies are. If you have any further questions, please give my office a call & we would be happy to provide you with a free business consultation. 888-449-2638, you can ask for Katie Hendrix at extension 110.

  15. Nellie,

    My wife and I have an online business which we currently report all revenues to a sole proprietorship under my wife’s name. We lived in New Jersey but now we are moving to Brazil for 6 months and when we come back we are going to be fully mobile (renting places short term wherever we go). we’ll use a PO box or virtual mail address and when in need of a ‘permanent’ home address it will be her parents’ address who live in NJ.

    We’d like to setup a virtual office in NYC so we have a more fancy business address, but we will not be conducting business there. Everything we do will be over the internet, OR, sometimes my wife may engage in speaking or coaching sessions in different states or even different countries.

    Generally what would be a course of action possible for us to take? We were thinking about incorporating our online business as an LLC in Delaware because of the flexibility but we were wondering if having a virtual NY address would make us have to pay taxes there or apply for a foreign certification in NY state?

    I know you can’t give us direct legal advice but i’d love to get some general guidance. What do you suggest?

    Thanks in advance,
    Bernardo

    • Hi Bernardo,

      Thank you for your question. Many business owners who frequently travel from state to state will set up in a state such as Delaware for tax & privacy reasons. One very attractive thing about Delaware is that they do not require a business address, which is great for those who move around. As far as any tax-related questions, I do recommend speaking with an accountant or CPA. If you’d like to take advantage of the free business consultation that my company offers, please call our representative Katie Hendrix at 888-449-2638 x110. Have a great day!

      -Nellie

  16. I am currently set up in the state of NC as a corp for a home based bakery. I will be moving out of state and no longer
    operating in NC. My question is can I leave it active or do I have to dissolve the business? Or do I leave it active and
    file as a foreign business in the new state that I will be moving too?

    • Hi Brigitte,

      Will you still be doing a considerable amount of business in the state of North Carolina? If so, the most common approach is to leave it in the home state, and foreign qualify in the new state. If not, generally what’s done is to dissolve the company in the old state, and re-form in the new state. If you have any other questions or need assistance with filing your new company and/or a foreign qualification, please feel free to call Katie Hendrix in my office at 888-449-2638 x110.

      -Nellie

  17. Hi and thank you for such an informative article. My question is, me and three friends of mine are collaborating into starting a jewelry business from each of our homes. The same business but we all live in 4 different states. Will one of us have to soley be in charge in one state (examples:taxes, permits etc). Our store will be on etsy and shopify as well.

    • Hi Anna,

      Thank you for your question. Corporations, LLCs, and DBAs are filed on a state level (or sometimes a county level) and taxes generally will only apply to the state where the business is actually registered. If you have any other questions, please feel free to contact Katie Hendrix in my office for a free business consultation at 888-449-2638 x110.

  18. Thank you for your information and help. My sister n law started a bowtique online in ks and I live in MO. We are doing it as a partnership. We were wondering if you or anyone knows of a good online bookkeeping program that can be accessed from different states but also works well with partnerships where it can show the things that I make and sell and the things that she makes and sells.

    Also I was wondering if I am understanding this correctly. If we start the business in KS and then have a craft show in MO we need a foreign qualification for MO.

    Thank you

  19. Hi Nellie,

    I am the president of a S. Corp in the state of Pennsylvania, All of my Employee’s are residents of Pennsylvania. S. Corp is a Travel Agency. I the president of the S. Corp have recently moved to Florida. I conduct no business in Florida when it comes to sales or advertizing. I over see the corporation on my lap top computer from my home. Do I need to register as a foreign corp with the state of Florida because I live in Florida?

    • Hi Tom,

      Great question. Generally, it will only be required to foreign qualify if the company is A) doing a substantial amount of business in the new state, and/or B) has a physical location/business address in the new state.

      If you have any other questions about foreign qualifying, please feel free to contact Katie Hendrix in my office for a free business consultation at 888-449-2638 x110.

  20. I own a company and we hold social events at bars in which people pay tickets to attend. I am incorporated in Maryland but these events are held in other states such as Virginia and Hawaii. The locations are at bars and restaurants. What happens with this? Register in all states? File and Pay taxes to all states?

    My employees are listed as my business location as their work location even tho they live and run the events on their own state. Should they have to pay Maryland income tax even tho they never set foot in Maryland?

    • Hi Tracy,

      Great question. I would probably recommend speaking with an accountant or CPA to find out what exactly is going to be required of you regarding taxes, as every business and every state is different. Generally, if a company is conducting business in multiple states, it’s usually required to be registered in those states. If you have any further questions or would like assistance in foreign qualifying your company, please feel free to call Katie Hendrix in my office for a free business consultation at 888-449-2638 x110.

  21. I work for a NYS corporation that is looking to do business with a LLC whose main office is in Florida, and has an office in NYC out of which the person I am dealing with work. The engagement agreement states that any legal action resulting from a breach of contract will be held in Florida. Is it their right to make this stipulation in the agreement?

    • Hi Yvonne,

      Thank you for reading and commenting on my post. Unfortunately your question is quote specific. I would recommend speaking with an attorney as only a legal professional would be best able to provide you with legal advice.

      Thanks!
      -Nellie

  22. Hi – thanks for the detailed post. If you could help with this question, I’d be so grateful. I understand that once you have a multi-state LLC, you need to pay income tax in your foreign state for the income earned in that state. So, what is meant by ‘income earned in that state’ – for example, if my llc is incorporated in FL but also registered in CA, I pay my income tax in FL in full, and then just income tax in CA on sales made in CA?

    • Hi Josh,

      Great question. The best person to assist you with this inquiry would be an accountant or CPA. Because taxes can get complicated and vary from state to state, I would definitely recommend seeking assistance from a tax professional. If there are any other questions you have, please feel free to contact my office for a free business consultation at 888-449-2638

      -Nellie

  23. If I am a web development and web hosting. company does my business need to do foreign qualifications but I will be doing business all across the world.

    • Hi Bryan,

      Great question. Generally a company will need to be foreign qualified if the business has a physical presence or business address in that state. If you have any other questions, please feel free to contact Katie Hendrix in my office for a free business consultation at 888-449-2638 x110.

  24. Hi Nellie,
    thank you for answering all those questions!

    I am a non-resident, Danish national who runs a small online dropshipping company with the USA as market. My server is located in Europe. There are no employees. The company is set up as an LLC in Denmark. In short, my company has no presence in the US.

    I have a few questions that I hope you can help me with:
    1) Since I will be selling to 48 US states do I need foreign qualification – when I’m fully based abroad?

    2) If I get a virtual office address in the USA would that count as having ‘presence’ in the USA?

    3) If I get a virtual address in the USA, would I then need to foreign qualify?

    Thanks a lot!
    / Tom

    • Hi Tom,

      Thank you for your question. As I’m not familiar with the specific requirements in Denmark, I would probably recommend speaking with a business attorney in Denmark. If you find that you are required to foreign qualify, please feel free to give Katie Hendrix in my office for a free business consultation at 888-449-2638 x110 – we’d be happy to file the foreign qualification for you!

  25. Aloha Nellie,

    We live in California and my husband is retiring this year. He and I will be moving full time to Hawaii and starting a consulting business that will be mostly online with an occasional trip back to Ca. All the “jobs” will be in Ca. only. Since the majority of the work will be online and phone calls, should we go ahead and register our business in Hawaii? Is there any benefit to registering it in Ca? Do we need a foreign qualification?

    Mahalo,
    Jo

    • Hi Jo,

      Generally a corporation or LLC will need to be registered wherever there is a physical address. Keep in mind that if the business is registered in California, it will be required to hold a business address in the state of California. If you have any other questions or need assistance with registering the company, please feel free to call Katie Hendrix for a free business consultation at 888-449-2638 x110.

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