7 ms·

> Is organized in Delaware, the jurisdiction of choice for many new LLCs. Be aware that if you are "doing business" in California which means you live there yo

> Is organized in Delaware, the jurisdiction of choice for many new LLCs. Be aware that if you are "doing business" in California which means you live there you also have to file as a California foreign entity and pay the absurd anti-small business flat tax of $800 a year. This also does not include your state income tax liabilities in California. Just because the LLC is formed in Delaware does not mean you don't have to pay income taxes in the state you reside. Delaware is just the legal residence, has nothing to do with income taxes. I moved to Tennessee in January and switched my single-member disregarded entity LLC from California to Tennessee. The annual fee in Tennessee is $400 vs $800 and there is NO STATE INCOME tax in beautiful TN.

mikeleeorg 8y ago
This is very important info. I've seen some founders get tripped up over this. Hopefully Stripe Atlas LLC provides support for foreign entity registration and taxes too (I would assume they do).
- patio11 8y ago
  We don't yet foreign entity registration in the product, but you could imagine us automating this, in addition to the Delaware franchise tax filing and registered agent services which we already handle.
  - mechwarrior 8y ago
    If foreign entity registration was automated for NY I would use this product immediately.
  - xapata 8y ago
    > could imagine us [doing] Euphamism for "That's on the roadmap, but I'm not allowed to announce it yet." Probably.
billconan 8y ago
So if I live in CA, it might be better to directly register a CA company to save cost, rather than registering a Delaware company via Strip Atlas?
- theptip 8y ago
  Yes, here's a recent HN thread with some more background on the CA LLC formation process: https://news.ycombinator.com/item?id=16805322 https://news.ycombinator.com/item?id=16805322
ryanSrich 8y ago
CA in general makes absolutely no sense to start a business in. There are zero arguments for starting a business in CA. Oregon, Washington, Texas, Colorado, etc. are all objectively better choices. Even if you're interested in raising money from SV investors you're far better off locating in Seattle, Denver, Portland, Austin, etc.
- morogop 8y ago
  One argument: SF and SV have more technologists, making it easy to hire particularly if you need to obtain specialized skills. There are more, but that one us sufficient to falsify your claim.
- knicholes 8y ago
  You forgot the lovely deseret (#2!) of Salt Lake City! https://www.cnbc.com/2017/07/21/the-top-15-cities-in-us-to-start-a-business-in-2017.html https://www.cnbc.com/2017/07/21/the-top-15-cities-in-us-to-s...
- caust1c 8y ago
  Except you know, California Labor Code section 2870... https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB&sectionNum=2870 https://leginfo.legislature.ca.gov/faces/codes_displaySectio... I'd be happy to know about other states which have similar laws.
- Meekro 8y ago
  I definitely agree with you that there are better states than California, but I recently moved my online company from California to Texas and discovered a really nasty surprise: Texas considers web hosting, server rental, SaaS, etc. to be services subject to sales tax [1]. Washington actually does as well, since you mentioned it. This will complicate your life in two ways: First, your internet company now has to enumerate subscribers in the same state as you and charge them sales tax. Your competitors, located in friendlier territories, can undercut you by not having to do this. Second, any payments you make to a SaaS/hosting vendor are now subject to use tax. Do you pay AWS for hosting every month? Get ready to cough up ~6% of that for Texas' treasury. If you're running the kind of business where your hosting bill will grow proportionally to your revenue, this amounts to a tax on revenue. In my case, it wildly exceeds anything California ever charged me in income tax. [1] https://blog.taxjar.com/saas-sales-tax/ https://blog.taxjar.com/saas-sales-tax/
koops 8y ago
Is "doing business" in California really defined as living in California? What's your source for that?
- patmorgan23 8y ago
  If you have a physical presence in a state you are considered doing business in that state.
  - mikeryan 8y ago
    Normally I’m pro simple answers but I think this answer over simplifies a bit too far. When it comes to allocating state revenue just having a presence in a state doesn’t mean as much as “where services are performed” or products sold. It’s a heck of a dance dealing with these issues some tax time.
- mikeyouse 8y ago
  It's not exclusively defined as living in California, but if you live in California and have an LLC, it almost certainly requires registration in the state: https://www.ftb.ca.gov/businesses/Doing-Business-in-California.shtml https://www.ftb.ca.gov/businesses/Doing-Business-in-Californ... For taxable years beginning on or after 1/1/2011, a taxpayer is doing business in California if it actively engages in any transaction for the purpose of financial or pecuniary gain or profit in California or if any of the following conditions are satisfied: > The taxpayer is organized or commercially domiciled in California. > Sales, as defined in subdivision (e) or (f) of R&TC 25120, of the taxpayer in California, including sales by the taxpayer’s agents and independent contractors, exceed the lesser of $500,000 [1] or 25 percent of the taxpayer's total sales. > Real and tangible personal property of the taxpayer in California exceed the lesser of $50,000[1] or 25 percent of the taxpayer's total real and tangible personal property. > The amount paid in California by the taxpayer for compensation, as defined in subdivision (c) of R&TC 25120, exceeds the lesser of $50,000[1] or 25 percent of the total compensation paid by the taxpayer. > For the conditions above, the sales, property, and payroll of the taxpayer include the taxpayer's pro rata or distributive share of pass-through entities. "Pass-through entities" means partnerships, LLCs treated as partnerships, or S corporations. So if your 'HQ' is in California, if 25% of your sales are in California, if more than 25% of your property is in California, or if more than 25% of the total compensation you pay is in California, you need a California LLC.
wilg 8y ago
Given this, is there any advantage (as a Californian) to having a Delaware LLC?
- mikeryan 8y ago
  I just went through this with my attorney and lawyer and the answer was pretty much “no”
  - xapata 8y ago
    > attorney and lawyer Two different people? Aren't those words synonyms?
    - mikeryan 8y ago
      Sorry I meant lawyer and accountant.
- JumpCrisscross 8y ago
  > is there any advantage (as a Californian) to having a Delaware LLC? Two big advantages to Delaware: 1. Fast courts. When I last looked, it was 180 days from complaint to decision in the Superior Courts while California took 900+ days. (Also notable, Delaware proudly publishes these statistics. California's were tougher to find.) 2. Developed law. Since most companies are in Delaware, most law is settled in Delaware. Lots of edge cases have been smoothed out. It's also a more business-friendly code than California's. That said, everyone's situation is different. Consulting with a lawyer is advisable.
pbnjay 8y ago
Watch out - Tennessee has an 6.5% excise tax on LLCs which is essentially an income tax if you're self employed. https://www.tn.gov/revenue/taxes/franchise---excise-tax.html https://www.tn.gov/revenue/taxes/franchise---excise-tax.html
- nodesocket 8y ago
  -- Update: Buried deep in the depths of TN website and using the most confusing and counterintuitive language ever assembled is this article: https://revenue.support.tn.gov/hc/en-us/articles/204647155-When-is-a-Single-Member-Limited-Liability-Company-SMLLC-required-to-file-a-franchise-excise-tax-return-in-Tennessee- https://revenue.support.tn.gov/hc/en-us/articles/204647155-W... Essentially it says if I am a disregarded entity for federal tax purposes I am exempt from both franchise and exercise taxes.
  - nodesocket 8y ago
    Ok, I am even more confused after reading this: https://revenue.support.tn.gov/hc/en-us/article_attachments/201984685/Important_Notice_13-16.pdf?mobile_site=true https://revenue.support.tn.gov/hc/en-us/article_attachments/... How do you even have a single member LLC that is a disregarded entity where the single entity is a corporation? Huh? That seems to indicate I am responsible for these taxes?
    - JumpCrisscross 8y ago
      > How do you even have a single member LLC that is a disregarded entity where the single entity is a corporation? LLC stands for "limited liability company," not corporation [1]. When one says "corporation" in a legal sense, it is typically understood to exclude LLCs. (That said, LLCs can elect to be treated as corporations for tax purposes.) [1] https://en.wikipedia.org/wiki/Limited_liability_company https://en.wikipedia.org/wiki/Limited_liability_company
    - jknightco 8y ago
      LLC members can be other LLCs or corporations.

mikeleeorg 8y ago

This is very important info. I've seen some founders get tripped up over this. Hopefully Stripe Atlas LLC provides support for foreign entity registration and taxes too (I would assume they do).

patio11 8y ago
We don't yet foreign entity registration in the product, but you could imagine us automating this, in addition to the Delaware franchise tax filing and registered agent services which we already handle.
- mechwarrior 8y ago
  If foreign entity registration was automated for NY I would use this product immediately.
- xapata 8y ago
  > could imagine us [doing] Euphamism for "That's on the roadmap, but I'm not allowed to announce it yet." Probably.

billconan 8y ago

So if I live in CA, it might be better to directly register a CA company to save cost, rather than registering a Delaware company via Strip Atlas?

theptip 8y ago
Yes, here's a recent HN thread with some more background on the CA LLC formation process: https://news.ycombinator.com/item?id=16805322 https://news.ycombinator.com/item?id=16805322

ryanSrich 8y ago

CA in general makes absolutely no sense to start a business in. There are zero arguments for starting a business in CA. Oregon, Washington, Texas, Colorado, etc. are all objectively better choices. Even if you're interested in raising money from SV investors you're far better off locating in Seattle, Denver, Portland, Austin, etc.

morogop 8y ago
One argument: SF and SV have more technologists, making it easy to hire particularly if you need to obtain specialized skills. There are more, but that one us sufficient to falsify your claim.
knicholes 8y ago
You forgot the lovely deseret (#2!) of Salt Lake City! https://www.cnbc.com/2017/07/21/the-top-15-cities-in-us-to-start-a-business-in-2017.html https://www.cnbc.com/2017/07/21/the-top-15-cities-in-us-to-s...
caust1c 8y ago
Except you know, California Labor Code section 2870... https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB&sectionNum=2870 https://leginfo.legislature.ca.gov/faces/codes_displaySectio... I'd be happy to know about other states which have similar laws.
Meekro 8y ago
I definitely agree with you that there are better states than California, but I recently moved my online company from California to Texas and discovered a really nasty surprise: Texas considers web hosting, server rental, SaaS, etc. to be services subject to sales tax [1]. Washington actually does as well, since you mentioned it. This will complicate your life in two ways: First, your internet company now has to enumerate subscribers in the same state as you and charge them sales tax. Your competitors, located in friendlier territories, can undercut you by not having to do this. Second, any payments you make to a SaaS/hosting vendor are now subject to use tax. Do you pay AWS for hosting every month? Get ready to cough up ~6% of that for Texas' treasury. If you're running the kind of business where your hosting bill will grow proportionally to your revenue, this amounts to a tax on revenue. In my case, it wildly exceeds anything California ever charged me in income tax. [1] https://blog.taxjar.com/saas-sales-tax/ https://blog.taxjar.com/saas-sales-tax/

koops 8y ago

Is "doing business" in California really defined as living in California? What's your source for that?

patmorgan23 8y ago
If you have a physical presence in a state you are considered doing business in that state.
- mikeryan 8y ago
  Normally I’m pro simple answers but I think this answer over simplifies a bit too far. When it comes to allocating state revenue just having a presence in a state doesn’t mean as much as “where services are performed” or products sold. It’s a heck of a dance dealing with these issues some tax time.
mikeyouse 8y ago
It's not exclusively defined as living in California, but if you live in California and have an LLC, it almost certainly requires registration in the state: https://www.ftb.ca.gov/businesses/Doing-Business-in-California.shtml https://www.ftb.ca.gov/businesses/Doing-Business-in-Californ... For taxable years beginning on or after 1/1/2011, a taxpayer is doing business in California if it actively engages in any transaction for the purpose of financial or pecuniary gain or profit in California or if any of the following conditions are satisfied: > The taxpayer is organized or commercially domiciled in California. > Sales, as defined in subdivision (e) or (f) of R&TC 25120, of the taxpayer in California, including sales by the taxpayer’s agents and independent contractors, exceed the lesser of $500,000 [1] or 25 percent of the taxpayer's total sales. > Real and tangible personal property of the taxpayer in California exceed the lesser of $50,000[1] or 25 percent of the taxpayer's total real and tangible personal property. > The amount paid in California by the taxpayer for compensation, as defined in subdivision (c) of R&TC 25120, exceeds the lesser of $50,000[1] or 25 percent of the total compensation paid by the taxpayer. > For the conditions above, the sales, property, and payroll of the taxpayer include the taxpayer's pro rata or distributive share of pass-through entities. "Pass-through entities" means partnerships, LLCs treated as partnerships, or S corporations. So if your 'HQ' is in California, if 25% of your sales are in California, if more than 25% of your property is in California, or if more than 25% of the total compensation you pay is in California, you need a California LLC.

wilg 8y ago

Given this, is there any advantage (as a Californian) to having a Delaware LLC?

mikeryan 8y ago
I just went through this with my attorney and lawyer and the answer was pretty much “no”
- xapata 8y ago
  > attorney and lawyer Two different people? Aren't those words synonyms?
  - mikeryan 8y ago
    Sorry I meant lawyer and accountant.
JumpCrisscross 8y ago
> is there any advantage (as a Californian) to having a Delaware LLC? Two big advantages to Delaware: 1. Fast courts. When I last looked, it was 180 days from complaint to decision in the Superior Courts while California took 900+ days. (Also notable, Delaware proudly publishes these statistics. California's were tougher to find.) 2. Developed law. Since most companies are in Delaware, most law is settled in Delaware. Lots of edge cases have been smoothed out. It's also a more business-friendly code than California's. That said, everyone's situation is different. Consulting with a lawyer is advisable.

pbnjay 8y ago

Watch out - Tennessee has an 6.5% excise tax on LLCs which is essentially an income tax if you're self employed. https://www.tn.gov/revenue/taxes/franchise---excise-tax.html https://www.tn.gov/revenue/taxes/franchise---excise-tax.html

nodesocket 8y ago
-- Update: Buried deep in the depths of TN website and using the most confusing and counterintuitive language ever assembled is this article: https://revenue.support.tn.gov/hc/en-us/articles/204647155-When-is-a-Single-Member-Limited-Liability-Company-SMLLC-required-to-file-a-franchise-excise-tax-return-in-Tennessee- https://revenue.support.tn.gov/hc/en-us/articles/204647155-W... Essentially it says if I am a disregarded entity for federal tax purposes I am exempt from both franchise and exercise taxes.
- nodesocket 8y ago
  Ok, I am even more confused after reading this: https://revenue.support.tn.gov/hc/en-us/article_attachments/201984685/Important_Notice_13-16.pdf?mobile_site=true https://revenue.support.tn.gov/hc/en-us/article_attachments/... How do you even have a single member LLC that is a disregarded entity where the single entity is a corporation? Huh? That seems to indicate I am responsible for these taxes?
  - JumpCrisscross 8y ago
    > How do you even have a single member LLC that is a disregarded entity where the single entity is a corporation? LLC stands for "limited liability company," not corporation [1]. When one says "corporation" in a legal sense, it is typically understood to exclude LLCs. (That said, LLCs can elect to be treated as corporations for tax purposes.) [1] https://en.wikipedia.org/wiki/Limited_liability_company https://en.wikipedia.org/wiki/Limited_liability_company
  - jknightco 8y ago
    LLC members can be other LLCs or corporations.