Can I own an LLC filed in a different state than I live in to run my online business?  When you are filling out the federal tax ID form, do you put doing business in the state for that LLC, or the state you live in – especially for a drop shipping/affiliate type business that is 100% online?

 


Answer

The big question is what is the tax structure of the LLC?

I’m assuming you’re setting up single member LLC and I would guess you’re probably using a default partnership tax structure. In that case, the net income will flow through to your personal return. If you live in a state that has a state income tax, you will pay your home state income tax on the net income. Most people are setting up LLCs in states like WY, DE etc. that don’t have personal income tax, so figuring out whether you’re on the hook for taxes in two states is probably not an issue, especially if you don’t have operations or other nexus to the LLC state of formation. You might be on the hook for a smaller tax item like a franchise tax.

If you elected to have the LLC taxed as a C-Corp, then you would potentially be on the hook for state corporate tax in the state of the LLC’s formation if applicable. Again, most people are not setting up LLCs in states with personal or corporate income taxes.

Do you have to register as a foreign entity doing business in your home state?

If you’re just working from home and don’t have an office, warehouse, etc. in your home state, you can probably get away with not registering because it’s debatable whether you’re doing enough business activity to warrant the registration. Oversight on this is usually pretty minimal. Also, even if you have to notify your state tax authority of your business earnings and presence to pay a state income tax, they usually don’t talk to the secretary of state’s office and don’t use the same systems, so disclosure to tax authority won’t necessitate registration as foreign entity. The old school, safest answer would be to go ahead and register as a foreign entity + get any local businesses licenses (either state or county), but up to your own risk tolerance. Penalty for not registering is usually past fees + penalty payment and you don’t get certain benefits like the ability to sue another company within the state.

Registered agent address vs. mailing address

You need a registered agent in the LLC state of formation but not your home state. The registered agent may or may not provide mail scanning/forwarding services. You can set up a mailing address at your house, a P.O. box, or a virtual office and use that for business mail. The registered agent will receive some official documents like your EIN, possibly initial bank documents. You could use the registered agent address to sign up for other business accounts but you would want to use the mailing address for most other purposes if someone would need to contact you by mail.

Sales tax, warehouses, etc.

There can be issues surrounding these items that it would be good to talk to an accountant who’s familiar with Amazon businesses.