Dear focusonmbm-ga,
From your description, it sounds like you will be starting an
individually run small business or "consulting practice." You may
want to consider filing as a Sole Proprietor rather than as a
corporation, never mind incorporating in another state. They require
much less paperwork, fees, avoid corporate income tax and do not
require a lawyer's assistance to form. Considering your hypothetical
$10,000/year income single person operation, this is the ideal form
for you. You can always incorporate later as your business grows and
you see an advantage in doing so.
The type of business you will be running (web hosting, computer
consulting) does not involve large liabilities, loans, or much risk.
Limited liability is not much of a concern in this case, as opposed to
a company like Ford with millions of debt and a product which can
malfunction and incur law suites. If you wanted limited liability,
you would need a lawyer to help you form the corporation anyway,
because if you made any mistake in your incorporating papers and then
got sued or went bankrupt, a judge could pierce the corporate veil
("go after you personally") even if you are incorporated.
In general, a small business should be incorporated (if at all) in the
state
where it has its principal place of business, *not* Delaware (unless
that's its
headquarters) or some other widely advertised locale. The reason for
this is
that a Delaware corporation will be required to qualify as a foreign
corporation (which requires an initial filing fee) and thereafter to
pay annual
license or fees and state income taxes in the states where it is
actually doing
business, thus subjecting it to effective double taxation in most
cases. While
there can be good reasons for choosing a particular corporate
domicile, in
general those reasons do not apply to small businesses contemplating
anyplace
other than their home state as the jurisdiction of incorporation.
Furthermore, an LLC is a relatively new form of business, and thus
requires more assistance from a lawyer.
Sales taxes are derived based on two things. One, where is the
reciepient of
your product and two, where is the actual financial transaction taking
place
for the company fulfilling the order. It is immaterial where or how
the end
user ended up ordering the product. A web site, for sales tax
purposes, in
no different than mailing a paper catalog or other sales promotion. It
is
simply a vehicle for information transmission. Think about it? Would
you be
expected to pay taxes in state A simply because you have your paper
catalogs
printed in that state? Would New York charge state sales taxes on a
Virginia
company simply because they advertised in the New York Times?
In the case of New Jersey, some services are subject to state sales
tax. You need to inquire with the New Jersey Departament of Revenue
to see if the services you will be providing are specifically subject
or exempt to state sales tax. Remember, it is not you who will be
paying the tax, it will be your customers. If every other business in
New Jersey has to charge tax as well, they will be used to it and it
should not have much effect on your business.
The bottom line is that as a Deleware corporation you might get away
with not charging sales tax on some items, such as your web hosting,
but the extra costs and hassle of incorporating out of state will be
greater than your savings, which remember are nil because you don't
pay sales tax anyway, your customer does. All you do is collect the
tax for the government. Your consulting services (if New Jersey taxes
them) would still be subject to sales tax because the service would be
rendered in New Jersey to a customer in New Jersey.
Sincerely,
sweetcaro333-ga |
