How to Expand Your Business into a New State

Growth. It’s the reason your business exists, and the only reason it will stick around. When it comes time to serve customers and markets in new states, don’t let legal requirements take the wind out of your sails.

Each state has specific requirements for companies doing business within their borders. While every business has unique compliance obligations, there is a core set of entity registration, tax, and business license requirements for all companies. As a business owner, knowing and preparing for these requirements in a broad sense can give you an advantage over your underprepared competitors.

Legal Entity Registration

When you first incorporated or formed your LLC, you filed paperwork (such as articles of incorporation) with your home state’s secretary of state. You also would have been required to appoint a registered agent for service of process. Reassuringly, you’ll only ever have one “home” state. But, in each state where you plan to do business, you’ll have to register with the Secretary of State and appoint a commercial registered agent within the new state’s borders. This process is known as “foreign qualification,” by which your LLC or corporation obtains “authority” to do business in that state. Authority is needed when a business has a substantial presence or activity in the state.

Many states impose fines, penalties, and additional franchise taxes on companies that start doing business before registering. You may be required to produce evidence of registration in that when dealing with clients, banks, and other vendors. Lastly, when applying for state tax accounts and business licenses, there’s a good chance you’ll have to register your legal entity first.

On an ongoing basis, you can expect to file annual reports to stay in good standing. Failure to submit these fairly straightforward information updates can result in your authority being revoked. State agencies, including departments of revenue, can assess fines and tax penalties. When you register in multiple states, learning annual report requirements and using a system to track due dates will save you tons of hassle in the long run.

Opening State Tax Accounts

Benjamin Franklin once famously said, “In this world, nothing is certain except death and taxes.”  Unsurprisingly, when doing business in a new state, you’re sure to encounter new tax obligations. States levy taxes on sales of certain products and services, company income, the wages of employees, and even on the legal entity itself. The kicker is that typically, your business isn’t automatically enrolled for these required tax accounts. The burden falls on you to research your requirements and register for the appropriate taxes. And, you guessed it, failure to do so can result in some pretty serious penalties.

Most state departments of revenue post guidelines for tax liability on their websites. In the aftermath of South Dakota v. Wayfair, online retailers should pay special attention to a new series of requirements, generally based on the volume of transactions and total income resulting from “interstate” online commerce.

Employers likewise should heed registration requirements for payroll taxes, commonly employer withholding and unemployment taxes. These accounts are required to pay your employees, and any payroll company will require state identification numbers from you as soon as you wish to process that first paycheck.

On an ongoing basis, businesses have tax returns due on varying frequencies for each of these applicable tax types. Again, the complexity increases because you’re no longer filing returns in a single state.

Modern businesses are wise to review their sources of revenue and employment situation with an accounting or legal professional. Understanding these registration requirements and ongoing tax ramifications is critical to success when entering new markets.

Business Licensing Requirements

Depending on your state, your industry, or location, your business may be subject to additional licensing requirements. States like Washington and Nevada have general business license requirements simply to operate. The District of Columbia regulates businesses by category. Everything from swimming pools to charitable solicitation require a license. In a majority of states, companies that provide certain professional services, like architecture, engineering, or insurance, have specific license requirements for not only their firm, but also certain practicing individuals.

Furthermore, licenses and permits based on local activity or service may be issued by agencies at various levels of government. Because of the complexity of requirements and length of time approval can take, your business is best served taking a proactive approach.

Getting Ahead of the Requirements (and the Competition)

Regardless of your industry or service, before going into a new state, begin the research process as early as possible. As your business development team scouts the horizon for revenue opportunities, sync up your compliance efforts. Too often, large contracts and projects fall through for failure to have the proper registrations and licenses in time. With proper preparation, you’ll be well equipped at the bargaining table.

If you view compliance as a hurdle, something to clear, then it will function that way. On the flip side, by viewing compliance as a strategic priority and an investment, you’ll be ready for opportunity, wherever you find it!

Harbor Compliance does not provide tax, financial, or legal advice. Use of our services does not create an attorney-client relationship. Harbor Compliance is not acting as your attorney and does not review information you provide to us for legal accuracy or sufficiency.