Friendly States

[Snaggletoof]

Organizing a joint venture of four existing companies, one in CA, one in AK, one in TN, one in VA. The joint venture will be a "shell" as opposed to being fully populated. Still we need to incorporate as some sort of entity somewhere. We're looking for a friendly state.

I've heard horror stories about some of the states, namely CA, MN and most of the northeastern states. I've also heard there are some states very friendly, possibly TX, FL, NV. TN is not that bad but has a high corporate tax rate because there is no income tax. (But TX, NV and FL don't have one either). Mississippi and Alabama are tax-friendly but have a horrible reputation for "jackpot justice" in giving $ zillions to employees who file workmens comp suits and other kangaroo court tactics. LA is a low-tax state and hungry right now, they might be a good fit.

The member from CA confirms his state is the worst. The member from VA says his state is not bad, but the municipalities, especially the beltway folks, are horrendous. I thought Alaska was a very low key, small govt state, but the member from AK says "no way."

I'm actively shopping a state for this joint venture. Anyone have any comments?

[sea-tax]

come jump into washington the water here is fine! No state tax .

Intial fee for incorporation is $125 and annually it is $10. One point that might interest you is that Washington Law requires that the shareholder or members be public record.

An attorney once told me that in Nevada shareholders and memebrs are not public information. Hard to sue someone you can't find.

[BOB W]

States

Here in the Northeast we use Delaware.

[Roland Slugg]

Watch for this

Nevada has no state income tax, but there is an annual statement and fee that must be filed and paid. This fee ranges from $125 up, depending on the amount of capitalization. Many other states ... perhaps all ... have a similar fee.

Simply setting up a corporation (or even an LLC) in a "no-tax" state may not work very well, however. California, for example, has an annual minimum fee of $800 payable by any corporation, LLC or limited partnership that does business in California. Thus, from a tax and fees perspective there is nothing to be gained by a business in California incorporating in Nevada or any other state. Other states may have similar rules, so be sure and find out before taking the plunge.

[BOB W]

Slugg......

.... is right. In addition, any state that the enity does business in is required to register as a foriegn entity and file tax returns with that state. So forming an entity with a no tax state has little to do with saving money. Unless you do not intend to do things correctly.

[S T]

Calif

As Roland pointed out, if the business is operating in Calif, it makes no difference what State the business entity is set up in . Also be aware of the Calif LLC "gross receipts" tax.

Here is a link http://www.methvenlaw.com/index.html that has some good info regarding the business entities in Calif.

Sandy

[rosieea]

Florida has a corporate income tax for C corporations. Tax rate is 5.5% of the amount of federal taxable income above $5000. Annual fee for for maintaining active status is $150.

[Snaggletooth]

Corporate Favors

Let me give a little more information -- this joint venture will have probably 3-4 employees itself. It is what is called in the contracting industry an "unpopulated" joint venture. Most of the activities will be conducted by its members, operating themselves in various states.

So the concept of "no personal income tax" does not carry that much of an advantage. A state with low corporate taxes and filing requirements is what is desired here.

Anyone care to pitch their state to this joint venture? CA and NY don't waste your time, unless there are good reasons to locate a 2-3 man office in your state....

[Black Bart]

Arkansas has

a progressive corporate tax scale: zero to 3.75% on the first $25K / then tax on $25K-$100K is $940 plus 6% of the excess over $25K. Annual corporate franchise tax fee is $150 and that's about all I know about them.

I've heard several times over the years that Nevada is vying with Delaware to be the most "corporation friendly" state. Here's a pros-cons link:

https://www.quickmba.com/law/corporation/nevada/

[S T]

Probably Forget Calif

Snags, you are right, California is probably not the right answer, income from the Entity venture or from the individual shareholder , will have to report Calif Income on both levels. $800 business (LLC, S Corp, C Corp) minimum for sure plus the passthru to members, shareholders, partners. Key question, is the business/s operating and deriving income in the State of Calif. If the entity is operating and deriving income from Calif, it does not matter where the business is organized in. If Nevada organized and operating in Calif, Calif will claim a tax, if Tennessee organized and business income in Calif, Calif will claim a tax. Calif is Source Income, where is the income derived from.

We have this happen frequently with a Nevada Corp, just because it is an out of state corp does not relieve the (Entity) of tax liabilities in Calif. Particularly so if one of the LLC members, or S Corp Shareholders is a Calif resident. If operations in Calif, there is an Entity Return, AND a member or shareholder resident of Calif (could be non resident as well) has to report Calif income.

Example: We had a Nevada Corp that was operating in all Western States and receiving income, from Calif, Oregon, Wa, Utah, Az, Nv, Co, This client started out as a Sched C business and thought if she did an S Corp in Nevada would not have reporting to Calif. It ended up that I had to prepare returns for all states, including Calif. and of course 80% of her business was California income. Had to apportion the income in each of the states, plus then pass through most income to the Calif shareholder as the Calif (resident)shareholder received the majority of the income from the business entity. She defeated her purpose and caused herself more expenses in legal and accounting fees.

Was not a fun return to prepare!

Sandy

[Unregistered]

Personally if a client brings in any kind of paperwork from a NV attorney I cringe. One of my partner's clients came in with a new NV S-Corp and the idea that no state returns were going to be needed. A trucker. With income earned all over the western US. Not only does he get to file multiple returns for the corp, he gets to do the same as the shareholder. The Amtrak Act is only for individuals.