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Specifically, what does it mean to be "operating a business"?

I started an LLC in Delaware, but write software to power my company from my home and while I travel across the country. Do I need to get a business license in my home state and locality? Do I also need it in any state I travel to where I work on my company?

We have no storefront, but are about to begin a nation wide mail order operation. Do I need a license in each state a customer could order from?

  • You probably wouldn't need to. Though, you should probably, in your contract, set your jurisdiction necessary if someone wanted to sue you. Personal Jurisdiction can get tricky with internet businesses and the law is still in flux. Additionally, be cognizant of tax laws. – Andrew Jun 24 '15 at 20:23
  • Where should I look for relevant tax laws? – JoshJordan Jun 24 '15 at 20:30
  • I am not sure of a repo of tax laws. But each state has its own sales tax laws (for example). If you operate in a state you are subjecting yourself to the jurisdiction of the same. (Notice how some items on Amazon charge taxes and others do not.) – Andrew Jun 24 '15 at 20:33
  • Gotcha. Thanks for your help. How is it defined to be operating in a particular state? – JoshJordan Jun 24 '15 at 20:43
  • That's the tricky bit. – Andrew Jun 24 '15 at 20:55
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There's a strong argument the LLC won't need to obtain a business license in each state you are making sales into. And these days, you don't need a physical location and may still be required to obtain a business license.

However, there are several variables at play which are state-dependent; such as what your home state is, what state you're incorporated in (which we already know), and what states you are selling into.

For example: If you were incorporated in Delaware, your home state is New York, and selling $250k of software into Illinois; the LLC may need to obtain a business license in each of these states.

A general rule of thumb would be to obtain a license in:

  • State of Incorporation
  • State of Domicile
  • State where the LLC has any employees
  • State where the LLC makes substantial sales into (e.g., over $250 or $500k per year)

The question really is one of "nexus," and most states define it differently. If you reach nexus in a state that requires you to pay income tax in such a state, then you may be required to obtain a license. Some examples of states with a rather low nexus threshold that requires licensure is Nevada and New Mexico.

Note: You'll likely be responsible for collecting/remitting sales tax as well as paying income tax on income you've earned in several states.

  • How does this apply in reference to selling/providing a service, such as advisory/consultancy work on the sale of a business itself? EX. My business is based in NY. I help a CO company sell their business to an IL company. I receive an advisory fee or success fee upon the sale of the business. – Sizzle Nov 4 at 21:33
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If you're personally a resident of Dalaware, then you're all good.

Otherwise, if you're personally a resident of another state, and some other resident in such state decides to sue your company after dealing with you as its agent, then you might not enjoy the LLC protections of your company and face personal responsibility in any such lawsuit, unless you register your company with your home state of residence as a foreign corporation. (Which is one of the reasons why incorporating in Delaware should not be advised for everyone.)

If you do a nationwide mail order operation, then, depending on your state, you might be required to collect the sales tax for orders shipped within the states where you have a nexus in (as Delaware has no sales tax, this would mean that you'd only have to collect the sales tax in your home state).

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