Business expansion into another state is an exciting time for your organization. But have you addressed all the registration requirements necessary to conduct business in your new state? Across the U.S., unique compliance rules in each state create complexity for multistate business leaders. Many organizations, despite their best efforts, fail to meet all business regulations across state lines.
For example, payroll. Do you know all your business registration obligations for a remote employee moving to a new state? Finding the right regulations in any state can be frustrating. Required filings for your specific industry, services, and products are rarely available as a consolidated package.
Many business leaders underestimate the complexity of multistate operations. They know to file sales tax returns and register for unemployment, but multistate registration requirements go well beyond those tasks. We urge business leaders to review their operations. This will help you better identify and meet multistate registration requirements. To aid in your review, below we provide an overview of important considerations for multistate tax registration.
Understanding Domestic and Foreign Qualifications for Multistate Business
Within the United States, businesses have either a domestic or foreign status in each state. The domestic state is where a business forms or incorporates. If it incorporates in New Mexico, the business is a domestic entity there. In all other states, it is a foreign entity.
State registration forms need you to show whether your business is a domestic or a qualified foreign business. Make this designation to ensure that your organization applies the proper tax rates, thresholds, and business filing requirements.
NOTE: Include any Tribal Nations you do business with for registration compliance. For example, Navajo Nation requires businesses to register with their regulatory department.
When do I need to register my business in another state?
Business registration requirements often come with or follow distinct events. These events expose your business to new compliance obligations. Acting on triggers, or better yet, preparing for them, can keep your organization out of harm’s way.
Four common triggers prompt companies to review the business registration requirements of a new state:
- Business location expansion – opening a physical business workplace across state lines. This includes a new office, a storefront, a manufacturing facility, or a warehouse.
- Product Sales – offering physical or digital products or services to clients or customers in a new state.
- New employees – onboarding new employees or contractors in another state.
- Remote work arrangements – transitioning remote employees and independent contractors to a foreign state.
Many businesses will trigger a foreign qualification by having an employee in a state. For others, like remote sellers, sales tax obligations are the primary triggers. Both situations dictate the need for comprehensive registration planning and compliance.
Consult early with REDW’s State and Local Tax experts to prevent costly oversights. We work with you to help ensure your business registration complies with all regulations. Connect with a trusted state and local tax advisor.
What are the most common business registration requirements?
State, local, and Tribal regulatory departments use different terms for their names, taxes, and permits. However, they share many similar aspects that are useful to understand.
Common Registration Requirements
Most businesses with employees in other states and that sell products in foreign states will need to register as follows:
- Secretary of State registration
- State income tax registration
- Payroll tax registration
- Sales tax registration
- Industry-specific licenses
- Local business permits
EXAMPLE: Arizona
Some states try to simplify and combine registration filing. Others divide tasks among different agencies, like Arizona. For example:
- To register an LLC or corporation in Arizona, you would file the required forms with the Arizona Corporation Commission.
- If you also need to register a DBA (“doing business as”) trade name or trademark, you will register it with the Arizona Secretary of State.
- To register for sales tax, you need a TPT License (transaction privilege tax—Arizona’s name for sales tax) from the Department of Revenue.
- If you hire employees in Arizona as a foreign entity, some individuals may need to obtain occupational licenses.
- Local business licenses are often required, such as those issued by the City of Scottsdale.
You should also review any other registrations and licenses that your business or industry may require in each state.
Also, be sure to learn the state’s specific laws. They may not yet apply to you. A few examples are family leave, pay transparency, and worker classifications. States like California have different thresholds for classifying workers as employees or independent contractors.
Potential Consequences of Noncompliance
Most business leaders have every intent to comply with the laws of the states that support them. Still, those that don’t comply — due to oversight, neglect, or choice — can face severe consequences.
Not registering in a foreign state could subject you to:
- Financial fines or penalties, which can be flat rates, a percentage of income during the noncompliance period, or based on other factors. This varies by jurisdiction and intent.
- Legal and insurance risks may arise if authorities revoke your LLC status for noncompliance. Business owners could face personal liability.
- Business disruptions, as authorities could shut down any business without a valid, current registration.
- Reputational risks, which are hard to quantify, can be significant. If your business faces fines, lawsuits, or shutdowns, and the public learns of them, you may find it impossible to recover your reputation.
How do I register my business in multiple states?
To register a business in another state, you must complete separate registrations for each state. Often called a “Certificate of Authority,” this is the initial document that states require for businesses to start working within them.
Foreign states often need your domestic state to provide a “Certificate of Good Standing” for the business you formed. The filing fee amount varies by state and business structure.
After the initial registration, you must complete the business licenses, tax registration, and other tasks. Your new state will require a registered agent, or statutory agent, with a physical address. They will accept legal documents on your behalf. You can sometimes serve as your own registered agent. But you must check the local rules for each state.
Domestic states, foreign states, and Tribal Nations usually require ongoing payment of taxes and fees and the filing of annual reports.
How do I learn about remote worker state registration requirements?
Many business leaders hold the mistaken belief that payroll services handle all the administrative tasks associated with remote work and hiring in another state. Unfortunately, the hiring firm, not the payroll administrator, must meet these registration requirements.
As with initial business registration, remote worker definitions and guidelines are state-specific. The best way to find the requirements in any state is to consult a trusted advisor who tracks the current requirements in all states. If you prefer to do the research in-house, you can usually find the information you need with the state’s Department of Labor.
Some laws and regulations you will need to understand (particularly in relation to rates, thresholds, and due dates) are:
- Tax withholding
- Workers’ Compensation
- Unemployment Insurance
- Benefit requirements and taxability
- Wage and Hour laws (particularly as they relate to overtime)
- Pay transparency
- Privacy regulations
State and local taxes are usually determined by the physical location where the employee performs their work. If an employee travels often for work or personal reasons, you may want to require them to keep HR updated on their location. This ensures compliance with all laws.
Fifteen states and D.C. have reciprocity agreements with nearby states, making allowances for withholding in a single state.
Getting Started with Multistate Business Registration
Create a business expansion compliance checklist.
A one-page business expansion compliance checklist can be a simple and helpful tool. It will keep you focused when expansion opportunities arise. Include the common registration requirements (see the titled section above). Also, link to source documents. These include your domestic Certificate of Good Standing, tax ID(s), and any Beneficial Ownership Information (BOI).
Include information in your checklist that is unique to your expansion, product line, and industry. Add specific licensure, state permits, payroll rules, and other relevant factors. As you use it, continue to refine your business registration checklist and ensure that you keep it current.
Review existing business registrations.
If your company operates in several states, conduct a review of its registrations at regular intervals. This will expose any gaps in registration. You can do this by consulting a trusted state and local tax advisor or handling it within your organization.
Hiring an external expert early on for an expansion project (or a remote work shift) allows your organization the time it needs to complete all the necessary steps. It also allows you time to configure payroll systems and update employee handbooks with new information. The consultants have the know-how and information to do the job. When experienced consultants finish ad hoc projects, your internal staff can focus on daily operations. This way, your team members won’t waste time on one-time-use information.
Your Trusted Compliance Partner
As experts in multistate business registration, REDW’s State and Local Tax (SALT) professionals are here to save you valuable time. We welcome your questions on multistate registration. Connect with one of our state and local tax advisors.
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