register your e-commerce business

Deciding What State To Register Your E-commerce Business In

Jennifer Deroin Sales Tax Nexus

By:  Michelle Dimas, Virtual CPA Specialist

Many people form businesses in their resident state for one of two reasons: 1.) it’s the clear choice, and 2.) Wait… I have options?   Deciding what state to register your e-commerce business in, should be considered carefully by considering multiple factors.

Filing in your state of residence can be a great option for many entrepreneurs, especially those who have a home office, physical store front, and/or do the bulk or all of their business in their home state. Depending on how many of these criteria you meet, you may have limited options or have no other choice but to file in your resident state.

Additionally, registering your business in your home state has the potential to save you additional fees in the long-run – by registering in your home state, you avoid paying “foreign entity” registration fees to other states or your own home state. These foreign entity registration fees can be two or three times the fee of a domestic, or in-state, entity – Yikes! It is also important to note that an entity that does business in the state in which it filed, will not need to obtain a registered agent. This amounts to additional savings in registered agent fees and can reduce the headache and hassle of finding a registered agent within your state that represents your interests.

Remember, however, that “doing business” in a state generally requires a physical presence in that state, or if not, an active “business” presence, which is defined differently from state to state.  “Physical presence” generally refers to the state where your business, your employees, and/or your business owners are physically located. “Business presence” generally refers to actively conducting operations related to your business within a state. The activities that establish a business presence may include forming relationships with state and local residents, businesses, and leaders; promoting or making your business visible and accessible to the state’s residents, etc.

Physical presence generally refers to the state where your business, your employees, and/or your business owners are physically located.

For clients who operate their business solely online and don’t have a “home-front operation,” it may be a good option to consider registering out of state if all, or a majority of, business is conducted out of state, or if you have no physical or business presence in your state. It’s important to note that you may still be required to register in your home state, but you may have the option to register as a foreign corporation. There can be significant long-term savings when you file in a different state, such as low or no sales tax, reduced filing fees, etc.

To sum all of this up, ask yourself these questions:

  1. Do I have a physical or business presence in my state of residence?
  2. Do I have a physical or business presence in another state?
  3. If I answer “no” to question number 1, am I willing to pay additional fees for the other benefits affiliated with doing business in that state?

There are a lot of factors to consider when determining where to register and file your new business. These factors should be examined very carefully because your choice could have local and sales tax, income tax, and legal liability ramifications. For more information, please contact us.