What state are you from?

What happens if I form an Internet company LLC in my home state and then move to another state?

• I want to create an LLC in my current state with my residence.  I plan on getting a registered agent to handle legal papers. This LLC will start off as part-time work while I work full time in another state as a nonresident (paying state income taxes of the full time job).  I plan on living in the other state as a nonresident for the full time job, but am currently undecided on becoming a full time resident for the future.  Since this is an Internet company and my official residence is in my home state, I'm not sure if I am considered a "foreign entity" if I run my Internet business and physically live in the other state.  In other words, my company and residency are established in the same state.  However, I will physically be located in another state as a nonresident and operating my Internet company there.  I don't know how to file for taxes??

• Answer:

  You should form your business in the location from which you will be operating it - and if that means the state in which you will be spending the majority of your time, so be it. I can't emphasize that enough. "Operating an Internet business" is a little bit too generic of a description to give you a definitive answer on your tax liability. It depends on what you are selling. If you are selling services, your income is sourced to the location in which the services are performed - i.e. where you are physically located when you actually perform the services. If you are selling non-digitized inventory (i.e. tangible products such as books or clothing) that you purchase for resale, your income is sourced to the location of the buyer, which means you have to allocate your income between multiple states. If you are selling non-digitized inventory that you create yourself (i.e. original items of jewelry), your income is generally divided 50/50 between the place where you created the item and the location of the buyer, per http://www.law.cornell.edu/cfr/text/26/1.863-3 If you are selling digitized inventory (i.e. apps) to which you retain the copyright (which is true in almost all cases), what you are earning is royalty income on the transfer of a license to use copyrighted property - and the income from that is sourced to where the property is used, i.e. the location of the buyer. Whether or not you have to register as a foreign entity depends on whether or not you are considered to be conducting business in a given state other than the one in which you created the business entity. As we've mentioned on a number of occasions, the definition of conducting business in a state is specific to the state, and your activities may rise to the level of conducting a business in one state while not rising to that level in another. I also can't emphasize enough that you should be willing to pay for professional expertise on the tax and legal aspects of operating your business. Where you actually form the business is not nearly as important as having someone on your side who can help you negotiate the minefield of keeping track of the allocation of your income and expenses, and keeping straight your obligations to each place where you conduct business.