Where to Register Your Business. Nexus

Generally speaking, you must register your business in the state where you have a significant presence also known as nexus. For the purpose of registering with the secretary of the state and department of the revenue and paying franchise, state income and gross receipts taxes, the business has established nexus if one of the following is true:

  • The entity has an office in the state

  • The entity has employees in the state

  • The entity has assets in the state

  • The entity has a significant portion of its sales in the state. see the table in our sales tax section.

The first 3 are called a physical nexus, while the last 1 is called an economic nexus.

If the entity has established nexus in more than one state, it must register in any state it has done so. This can be done by registering as a foreign entity. For example, a California company that has opened a store in Texas will register as a foreign entity there. In this case the entity will apportion its income to each state and pay tax in a given state only for the portion of income derived in that state. For example, the aforementioned company has generated $1,000,000 in California and $200,000 from the new store in Texas. While for federal tax purposes, the entire $1,200,000 will be reported together, for state taxation $1,000,000 in CA will be subject to taxes in California and $200,000 in Texas.

Business Address

When registering with a state, every business must provide 3 addresses:

  • Principal: the main place where the business is conducted.

  • Mailing: the place where the company receives regular mail.

  • Legal, also known as a registered agent: the where the business accepts legal mail such as service of process.

While the first 2 do not have to be in the state of registration, the registered agent has to be in the state of registration. If the company is registered in multiple states, there has to be a registered agent in each state it is registered. When someone wants to file a legal complaint against a company, he or she can look up registered agent’s address in the secretary of the state records and serve the complaint there. The registered agent must be open to public during business hours and must accept the service of process. Failure to do so may default the company in the court. If the company has a representative in a state it is registered, such as an owner, employee or officer, that representative can serve as a registered agent. Otherwise, the entity can hire a commercial registered agent. It is basically a private company that agrees to accept legal mail for your business in a given state. The commercial agents are cheap, ranging typically from $25 - $200. A simple Google search will yield multiple agents, or you can contact the secretary of the state for the list.

It is also perfectly legal and common for a business to have the same address for its principal, mailing and registered agent as long as the latter is in the state of registration. For example, a hair salon in Fort Summers, New Mexico can list the place of the salon as its principal, mailing and registered agent address. Same is true for home-based businesses, however, the home address needs to be publicly available, therefore many business owners hire a commercial agent.

Secretary of The State

Secretary of the state (SOS) is in charge of registering and keeping up to date information about business entities. For most businesses, filing with SOS is the first step in registering their entity. Information, such as the legal name of the company, its legal address and legal structure is made public by the SOS. Most SOS' charge a fee for formation of the business as well as require annual report fees to keep it in good standing. Other paid services include dissolving the business, providing proof of good standing, reinstating a dormant business etc... Basic information, including the name, type and legal address of the entity are typically available for public on the secretary of the state's website. Paradoxically, the registration with the SOS does mot create a nexus in the state. Many organization register with the SOS for purposes of opening a bank account, take advantage of a favorable court system or attract investors. SOS generally does not collect taxes but in some states may be in charge of collecting the franchise tax.

Department of Revenue

DOR of each state, sometimes also called Franchise Tax Board or Department of Tax and Fee is in charge of collecting most state taxes. After registering with the secretary of the state the business may also register with the department of revenue to pay franchise, sales, state income and revenue taxes. This is not always mandatory, since paid tax preparers and electronic tax preparation software can remit payments on behalf of the business. If the company doesn't owe any tax in the state the registration with DOR is typically not necessary. This is especially relevant when the entity is registered for the purpose of attracting investments, taking advantage of a more favorable court system or opening a bank account.

Employment Development Department

This agency is in charge of collecting payroll taxes, protecting employee rights, allocating unemployment benefits and so on. When hiring employees a registration with EDD is typically necessary,

To learn more about different types of taxes and fees states impose on companies click here. Click on each state below to learn more about specific taxes and fees there.