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You've seen the ads, you heard it from seminars, maybe even from your friends: Form a NV corporation and avoid state income tax.
Is that true? Probably not.
The issue is something called "Nexus." Nexus (in this case) means where do you do business. If you have a corner grocery store in California, you have a California business...no ifs, ands or buts. If you form a corporation in NV for your corner grocery store, you'll have to first pay the NV formation fees and then have it authorized to do business in California...and pay the California fees on top of that.
The corner grocery store, or any bricks and mortar storefront for that matter, are easy examples of what Nexus is. But, what about a virtual company? Like, say, an eBiz? Now it gets tricky. You need to determine where most of the work is occuring. Where is the product or service fulfilled from? Where is the money collected? Where is the bookkeeping done? And if there isn't one answer that is jumping out, finally, where are you located?
There is one more consideration - changing nexus to a state other than your home state only works for C Corporations. Everything else is a flow through entity, which means the income flows through to you on your personal tax return. If you make money in a NV S corporation and it flow through via K-1 to your personal California return, you're still paying California income tax. You haven't saved a thing.
A lot of people talk about Delaware corporations as well. Delaware is an expensive place to have a corporation, but they have great law and especially case law. Most people who are planning to go public, do it through a Delaware corporation.
So, what is the best state for your business? Consider the type of business structure (S Corp or C Corp). Consider nexus. Consider the case law and protection the incorporating state will give you.
And, ask a professional, especially if you're going to use a state outside of your regular home state.
Is that true? Probably not.
The issue is something called "Nexus." Nexus (in this case) means where do you do business. If you have a corner grocery store in California, you have a California business...no ifs, ands or buts. If you form a corporation in NV for your corner grocery store, you'll have to first pay the NV formation fees and then have it authorized to do business in California...and pay the California fees on top of that.
The corner grocery store, or any bricks and mortar storefront for that matter, are easy examples of what Nexus is. But, what about a virtual company? Like, say, an eBiz? Now it gets tricky. You need to determine where most of the work is occuring. Where is the product or service fulfilled from? Where is the money collected? Where is the bookkeeping done? And if there isn't one answer that is jumping out, finally, where are you located?
There is one more consideration - changing nexus to a state other than your home state only works for C Corporations. Everything else is a flow through entity, which means the income flows through to you on your personal tax return. If you make money in a NV S corporation and it flow through via K-1 to your personal California return, you're still paying California income tax. You haven't saved a thing.
A lot of people talk about Delaware corporations as well. Delaware is an expensive place to have a corporation, but they have great law and especially case law. Most people who are planning to go public, do it through a Delaware corporation.
So, what is the best state for your business? Consider the type of business structure (S Corp or C Corp). Consider nexus. Consider the case law and protection the incorporating state will give you.
And, ask a professional, especially if you're going to use a state outside of your regular home state.
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