In the USA, states have powers to recognize the incorporation of the business in the case of Intracompany sales. If the sales or the provision of services are intercompany then the federal has the jurisdictional right to tax the business structures and make it compliant.
Based on this rule of the land, most of the states of the USA make it compulsory to incorporate the Company in the state as a foreign company/LLC.
In recent times, most of the LLCs/Corporations would like to do business in the whole US but it creates challenges in terms of compliance and taxes as well. Here I just tried to explain the complicated things in an easy manner.
The first step in the online Business Registration process is to choose a Legal Business Entity that will define its Business structure and Business process with which it will conduct and Run Their Business activity.
When any business wants to sell to the states where they are not incorporated then there are two options to make sales:
1. Make Sales to the other state from the incorporated state(Intercompany)
2. Incorporate the Foreign LLC/Corporation in the other state and make sales (Intracompany)
But here, I would like to mention one thing that in which state do the Corporations/LLCs need to incorporate? Generally, the home state of the Owner of the Corporation/LLC is preferred as the state of incorporation and it is known as the domestic Corporation/LLC. But when the company is expanding its business in other states then it will create Foreign Corporation/LLC.
Foreign Corporation/LLC means the state does not originally belong to the state where it is incorporated. Each state has defined certain criteria to decide whether the incorporation of a foreign corporation/LLC is required or not.
Generally, the state requires the incorporation of a Foreign Corporation/LLC when the business is going on from the state and has the office/plant in the state. It is also necessary to keep in mind that merely the office to process the share transfers, debt obligations, other operational tasks, etc. does not make a compulsion to incorporate the Foreign Corporation/LLC.
Foreign LLCs is generally having very limited compliance as compared to domestic LLCs to make it familiar to outsider businesses by the state. It is also important to discuss the sales and use tax here to make the correct decision.
Sales and Use Tax will be based on the economic nexus so the registration of sales and use tax requires if the economic threshold of the state is breached by the business. Each state has its own criteria for the economic nexus for the sales and use tax.
Sales and Use Tax is applicable whether you incorporate the company in the state or not. It does not create any difference in the sales and use tax liability. Income tax will be applied based on the state where the business is carried. It is not possible to levy taxes by two states on the income earned.