Hello taylorich,
Thank you for your interesting question.
Unfortunately, I have bad news: you actually will have to register in
all three states. You are doing business in all three. You will have
to incorporate in one and then file as a foreign corporation in the
other two. New Jersey has the same rates for domestic and foreign
operations. New York does charge $50 less to register as a domestic
corporation rather than a foreign one. Most importantly, Texas charges
$750 for a foreign corporation to register there as a foreign LLC,
$400 more than for a domestic LLC. This is possibly meant to offset
the fact that foreign companies do not pay the state franchise tax.
However, you live in Texas and will have nexus there and I don't
believe that you can not pay the tax. I detail this later in my
answer. In any case, the franchise tax is pretty low regardless. Due
to this, I recommend that you primarily incorporate in Texas and then
register as foreign LLCs in New Jersey and New York. However, you will
need to consult with a lawyer and/or a CPA to be sure of your options.
I hope this information helps you get an idea of the fees and special
issues involved in each state.
If your partner does work only at the NYC office and not in New
Jersey, you could get out of filing in New Jersey altogether. If he
works in New Jersey, though, you'd better file there anyway.
Here are some listings of the best business climates, tax-wise. Texas
is ranked MUCH higher than New York and New Jersey, which are ranked
almost near the bottom.
"State Business Tax Climate Index"
http://www.taxfoundation.org/publications/show/78.html
-------------------
misc.legal
"internet business - legal and tax questions"
http://groups.google.com/group/misc.legal/browse_frm/thread/5c727bce993a4a37/5b079f5fb708b642?lnk=st&q=llc+incorporate+new+jersey&rnum=2&hl=en#5b079f5fb708b642
"The
truth is that legally you will owe taxes to any state in which you have
a physical presence. If you are operating from NJ, you owe NJ."
misc.taxes.moderated
"LLC's and S-corps with alien status"
http://groups.google.com/group/misc.taxes.moderated/browse_frm/thread/917a6d8c831f1811/671ebdfacac2a90e?lnk=st&q=new+jersey+franchise+tax+llc&rnum=5&hl=en#671ebdfacac2a90e
"If a corporation is doing business in a state, it has to
file returns in that state, and pay tax in that state.
So, traditionally, if a corporation is only doing
business in one state, we incorporated it in that state.
Thus, for example, if the corporation only does business
in, say, NY, and it is incorporated in Delaware, it
still must file in NY and pay tax in NY. There is no NY
tax savings to incorporating in Delaware. Indeed, there
are additional costs of having to hire a registered
agent in Delaware and having to do annual filings in
Delaware. It will cost about $250 per year extra to
deal with Delaware, in addition to the costs of dealing
with NY (or whatever state you are actually doing
business in), which costs you won't avoid simply by
incorporating in Delaware."
However, you are lucky for your personal situation that one of the
three states (Texas) has no income tax and the corporate income taxes
are low.
misc.legal
"Incorporation"
http://groups.google.com/group/misc.legal/browse_frm/thread/2c045a6f756541c4/35e8108c2a8e7b1d?lnk=st&q=llc+incorporate+new+jersey&rnum=3&hl=en#35e8108c2a8e7b1d
"He is free to form the business in any state. He will be required to
qualify as a foreign (out or state) corporation in any state in which
he does business. Each state will be entitled to corporate income tax
on their share. Still, it would save some money to form the business
in a state which doesn't have a corporate income tax."
------------------
Overall LLC situation--
You will be paying a franchise tax, and there is no way to get out of
this, as all three states have franchise taxes on LLCs.
Wikipedia entry-- LLC
http://en.wikipedia.org/wiki/Limited_liability_company
"Many states, including Alabama, California, Kentucky, New Jersey, New
York, Pennsylvania, Tennessee, and Texas, levy a franchise tax or
capital values tax on LLCs. In essence, this franchise or business
privilege tax is the "fee" the LLC pays the state for the benefit of
limited liability. The franchise tax can be an amount based on
revenue, an amount based on profits, or an amount based on the number
of owners or the amount of capital employed in the state, or some
combination of those factors, or simply a flat fee, as in Delaware."
Even if you incorporate in Delaware, you have nexus in three other
states, so you would just have to pay fees and file returns in four
states, not three. This would not save you money in any way.
------------------
Texas--
Tax Foundation-- Texas Tax Climate
http://www.taxfoundation.org/research/topic/60.html
Be aware that though that says there is no corporate income tax, there
is actually a franchise tax that is basically a form of corporate
income tax in Texas.
Texas has a filing fee of $300. Since you might be moving, there will
be a charge of $15 to change the registered agent's address.
The foreign fees are $750.
Here is the complete schedule:
Texas Fee Schedule
https://direct.sos.state.tx.us/help/help-corp.asp?pg=fee
"Background and Structure
of the
Texas Business Organizations Code"
http://209.85.129.104/search?q=cache:iOjzhgtsOWwJ:www.sos.state.tx.us/corp/forms/boc/structure_effective_dates.pps+site:state.tx.us+llc+fees&hl=en&gl=us&ct=clnk&cd=1&client=firefox-a
"The filing fee is $300. Fees may be paid by personal
checks, money orders, LegalEase debit cards, or MasterCard, Visa, and
Discover credit cards. Checks
or money orders must be payable through a U.S. bank or financial
institution and made payable to the
secretary of state. Fees paid by credit card are subject to a
statutorily authorized convenience fee of 2.7
percent of the total fees."
Here are Texas' laws which govern corporate taxes, called the
"franchise tax." You will have to pay these regardless of whether you
are incorporated there or do business there as a foreign corporation:
"The Texas Franchise Tax on Corporations"
http://www.window.state.tx.us/taxinfo/taxpubs/tx96_114.html
"Taxable Capital
Taxable capital is a corporation's stated capital (capital stock) plus
surplus. Surplus means the net assets of a corporation minus its
stated capital. For a limited liability company, surplus means the net
assets of the company minus its members' contributions."
"Earned Surplus
Earned surplus basically includes the corporation's federal net
taxable income, plus compensation paid to officers and directors of
the corporation.... The tax rate on earned surplus is 4.5 percent."
"No Minimum Tax
Corporations that owe less than $100 do not pay any tax. In addition,
for reports due on or after January 1, 2000, corporations will not owe
any tax if the gross receipts from their entire business for both
taxable capital and taxable earned surplus are each less than $150,000
during the period upon which the tax is based. These corporations must
file an abbreviated information report."
There are ways to sidestep the Texas franchise tax. However, it
doesn't seem that these methods would work in your case, since you
have "nexus" (a business' physical presence, with you doing work for
it and living there) in the state. I'll link to them, however, for you
to peruse and possibly get some ideas. I don't see how they would work
for you, however, unless you move out of the state of Texas sometime
soon.
misc.taxes.moderated
"Avoiding 99% of Texas franchise tax"
http://groups.google.com/group/misc.taxes.moderated/browse_frm/thread/23467bea8596c10b/b3f53850a1132d82?lnk=st&q=texas+franchise+tax&rnum=1#b3f53850a1132d82
------------------
New Jersey--
Tax Foundation-- New Jersey's tax climate
http://www.taxfoundation.org/taxdata/topic/44.html
"New Jersey?s corporate tax structure consists of a flat 9% on
corporate income. However, corporations with total net income of
$100,000 or less pay 7.5%. Moreover, corporations with total net
income of $50,000 or under pay 6.5%. Among states levying corporate
income taxes, New Jersey's top tax rate ranks 8th highest nationally.
In 2004, corporate tax collections reached $218 per capita, ranking
the state 5th highest nationally."
Business Toolkit
http://www.toolkit.cch.com/text/P07_5281.asp
"If your corporation in New Jersey is a domestic corporation (a
corporation organized in New Jersey) or a foreign corporation (a
corporation organized in a state other than New Jersey), you must file
an annual report. The annual report, along with a $50 fee, is payable
to the Secretary of State."
Here is the list of New Jersey LLC fees:
New Jersey Department of Revenue Recording Fee Schedule
http://www.state.nj.us/treasury/revenue/dcr/geninfo/fees_pd.html
Certificate of formation
$125.00
Certificate of registration for a foreign LLC
$125.00
All amendments
$100.00
Reinstatement of charter
$275.00
Certificate of Cancellation : domestic
foreign LLCs
$100.00
$125.00
Certificate of Correction
(Used to correct a deficiency in a filed certificate and not
to amend a filed certificate)
$100.00
Change of Registered Office or Agent or Both
(Also, includes resignation of agent without successor)
$25.00
Resignation of registered agent with appointment of successor:
Certificate
Affidavit for each affected LLC
$25.00
$10.00
LLC name reservation
$50.00
Transfer of reserved LLC name
$50.00
Renewal of reserved LLC name
$50.00
LLC alternate name registration
$50.00
Renewal of LLC alternate name
$50.00
Annual Report
$50.00
Expedited service fee (applies only to over-the-counter transactions) :
--per filing
--Same Day service fee (FAX filing only)
$25.00
$50.00
This will cost you at least $75 in initial fees-- and then $50 for the
annual report each year.
------------------
New York--
Tax Foundation-- New York Tax Climate
http://www.taxfoundation.org/research/topic/46.html
"New York?s corporate tax structure is composed of a flat rate of 7.5%
on all corporate income. Among states levying corporate income taxes,
New York?s rate ranks 21st highest. In 2004, New York's corporate tax
collections were $278 per capita and ranked 3rd highest nationally."
New York has an annual filing fee of $100 for a two-member LLC.
New York State Department of Finance on LLCs
http://www.tax.state.ny.us/pdf/publications/multi/pub16_103.pdf
"Note: A foreign LLC or LLP that actually conducts business or
other activities in New York State is not relieved of its
obligation to file tax returns, and, if applicable, to pay the annual
filing fee, simply because it fails to register with the Department
of State."
"Every domestic and foreign LLP and LLC that is treated as a
partnership and has any income, gain, loss or deduction from
New York sources is subject to an annual filing fee. The filing
fee applies to each taxable year of the entity...
The amount of the filing fee is $50 multiplied by the total
number of members or partners in the LLC or LLP. However,
the fee cannot be less than $325 or more than $10,000 annually."
"A domestic or foreign LLP or LLC that is treated as a
partnership that does not have any income, gain, loss or
deduction from New York sources, but is required to file a New
York State partnership return solely because it has a member or
partner who is a New York resident, is not subject to the filing
fee. In addition, a domestic LLC or LLP with no New York
source income is not subject to the filing fee solely because it
was formed under the laws of New York State. Similarly, a
dormant LLC or LLP having no items of income, gain or loss or
deduction is not subject to the fee. Furthermore, an LLC or LLP
that elects to be treated as a corporation for federal income tax
purposes is not subject to the fee."
The original application fees run $250. ($200 filing fee, $50
publication fee.) For a foreign LLC, it would be $300 ($250 filing
fee, $50 publication fee.)
Here is the fee schedule:
New York fees
http://www.dos.state.ny.us/corp/llcfile.html
There is a "publication requirement" for New York LLCs. You must
publish in a newspaper, usually in the county of incorporation, that
you are doing business in the state as a foreign corporation.
Q&A-- LLCs
http://www.bizfilings.com/smartmoney/llcfaq.htm
"In New York, all LLCs formed or foreign qualified there are required
to publish a notice of formation for six consecutive weeks in assigned
newspapers. This requirement does not affect the good standing status
of the LLC; however, an LLC is required to complete this requirement
in order to have access to the New York State court system.
The publication is made at the county level in two newspapers as
assigned by the local county recorder. The cost of this requirement
varies greatly based upon the county where the business is located. In
New York County, the publication costs will be higher than in the rest
of the state."
New York City also has an unincrorporated business tax, which affects
LLCs. The tax is 6.5 percent.
alt.computer.consultants
"NYC Unincorporated Business Tax ?"
http://groups.google.com/group/alt.computer.consultants/browse_frm/thread/dddeafdefbc9cc2d/bc18267f83cd86af?lnk=st&q=new+york+franchise+tax+llc&rnum=5&hl=en#bc18267f83cd86af
------------------
Sources:
misc.taxes.moderated
"Nevada LLC / Nexus to other states"
http://groups.google.com/group/misc.taxes.moderated/browse_frm/thread/b3f635f4a147db6c/63a8468145acafc8?lnk=st&q=new+jersey+llc&rnum=5&hl=en#63a8468145acafc8
Search terms:
(on Google and Google Groups)
llc incorporate new jersey
texas franchise tax
new jersey franchise tax
new jersey franchise tax llc
new york franchise tax llc
new jersey llc
site:state.ny.us llc filing fee
site:state.tx.us llc filing fee
site:state.nj.us llc filing fee
site:state.tx.us foreign llc fees
site:state.ny.us llc publication requirement
If you need any additional clarification of my answer before rating,
let me know and I'll be happy to assist you. (I will be out of town
for the weekend and I'm not sure how much Internet access I'll have,
just to let you know.)
--keystroke |
