Business registration / taxes

[Ben29]

I am not sure where exactly I should post this, so bear with me, please. My accountant is telling me one thing, but I disagree with him.

Does anyone know if you need to register your business in every state that you do work in? I think the answer is yes. So then, does the company need to pay corporate taxes to each state (prorated based on revenue per state)? Further, if you are the owner of your company, your company is an S-corp, do you need to file corporate and/or personal income tax returns with all of the states that you do business in?

 

[LittleInch]

There's a forum called Engineer business practices and issues and probably better there. Copy your post then delete this one is the easiest way or red flag it yourself and ask for it to be moved.

Knowing what type of work you do would probably be useful.

 

[phamENG]

Does anyone know if you need to register your business in every state that you do work in?

Depends on the laws in that state. Some states require that you have a firm license from the state, which in turn requires registration with the Secretary of State or another office. Other states don't have that requirement.

pay corporate taxes to each state (prorated based on revenue per state)? Further, if you are the owner of your company, your company is an S-corp

One of the primary reasons of selecting S-Corp for a tax structure is to avoid corporate taxes altogether. S corps are pass through entities, meaning company profits are passed to the share holders to be taxed on personal filings. Most states honor this structure at the state level as well, though there could be exceptions.

do you need to file corporate and/or personal income tax returns with all of the states that you do business in

Generally speaking, no. Some states may require it. For instance, Maryland has certain thresholds. As a foreign S-Corp, I have to file an annual report, but as long as I don't have an office there, my revenue in the state is less than the threshold, and something else I can't remember, I don't have to do anything else. But even then, I think that's only corporate personal property and not income.

I have a Virginia PLLC taxed as an S Corp. I hold firm licenses in a couple other states, and do business in a couple more that don't require it. I file annual reports as required, but I don't have to pay taxes to any other state. Because all of my personal income comes from a Virginia business, I only pay state taxes in Virginia.

Of course I am NOT an accountant. If you don't trust yours, get a second opinion from another CPA.

 

[phamENG]

There's a forum called Engineer business practices and issues and probably better there. Copy your post then delete this one is the easiest way or red flag it yourself and ask for it to be moved.

Knowing what type of work you do would probably be useful.

I wouldn't worry about it. Ben is a structural engineer doing design/consulting work like most of us here. I'm all for organization, but that forum will attract a lot of attention from people unfamiliar with our typical business model. This is as good a place as any.

 

[Ben29]

Pham: Thanks for your reply. This is very helpful. My office is in PA. 98% of my revenue comes from MD. My business was founded and registered in MD. Since my office is in PA, my accountant wants me to move my business entity to PA and register in MD as a foreign S-Corp. He thinks it will lessen the tax burden on me. I'm not so sure about that. I feel that if I register in PA and MD it will just make more forms for me to file and end up costing more.

Do you pay the PTE tax?

 

[phamENG]

To Maryland? No. I have a Virginia business and I am a Virginia resident. No taxes paid to Maryland.

 

[XR250]

Pham: Thanks for your reply. This is very helpful. My office is in PA. 98% of my revenue comes from MD. My business was founded and registered in MD. Since my office is in PA, my accountant wants me to move my business entity to PA and register in MD as a foreign S-Corp. He thinks it will lessen the tax burden on me. I'm not so sure about that. I feel that if I register in PA and MD it will just make more forms for me to file and end up costing more.

Do you pay the PTE tax?

Sounds fishy to me if you are an S-Corp.
I pay PTE.

 

[LOTE]

My business (LLC file as Scorp) is registered in NC and also licensed as a foreign company in MD. I pay no taxes to MD and get the $300 SDAT annual report filing fee waived for qualifying for the "MarylandSaves" program. You just need a business retirement account (like 401k) to qualify.

As far as moving the home state of your LLC to PA, I think your CPA is probably right. While per the letter of the law you may be able to avoid paying taxes in MD, with 98% of your business there and your LLC registered there, MD will likely say you are in MD for tax purposes and make you go through a lengthy court trial to prove otherwise (while PA will also say you are in PA for tax purposes). There is a lot of case history of this happening in states like NY and CA. Having your LLC/Scorp registered in your home state simplifies things to avoid paying taxes to 2 states.

With my business licensed in many states, I generally do not worry about taxes in those states unless I start approaching $100,000/yr in that state. In that case, you may need to establish NEXUS and pay state sales tax (unless the state excempts professional services, which most do).

 

[phamENG]

Sounds fishy to me if you are an S-Corp.
I pay PTE.

I pay it to Virginia, but not to other states.

 

[phamENG]

I pay no taxes to MD and get the $300 SDAT annual report filing fee waived for qualifying for the "MarylandSaves" program.

Oh really? I'll need to look into that...

 

[LOTE]

Sounds fishy to me if you are an S-Corp.
I pay PTE.

If your business is licensed outside of MD, you live and work outside of MD, all owners live outside MD, you have no offices in MD, and you have no employees in MD, you do not need to pay PTE tax.

 

[XR250]

My business (LLC file as Scorp) is registered in NC and also licensed as a foreign company in MD. I pay no taxes to MD and get the $300 SDAT annual report filing fee waived for qualifying for the "MarylandSaves" program. You just need a business retirement account (like 401k) to qualify.

Why are you set up this way? How does MD even know you are billing customers there?

 

[LOTE]

Why are you set up this way? How does MD even know you are billing customers there?

In order to get my COA for my firm to practice engineering in MD, I had to first register with the SoS (register as a foreign LLC practicing in MD). MD doesn't really know that I am billing customers there since the way they phrase the questions and per my CPA, I can answer $0 for everything on the renewals.
I know there have been discussions on the Business Practices forum on whether filing with the SoS is truly necessary under certain circumstances, but I dug into that well after doing what is recommended by the engineering board in MD.

 

[phamENG]

The North Carolina Board won't issue your license as foreign PLLC until you prove that you have a COA from the SoS. Which is great because the SoS won't approve you until NCBELS has. So it's a multi-step process - the board verifies you're eligible and gives you paperwork saying you are so the SoS will give you a COA, then with COA in hand you can get the firm license. That one was real fun.