4 ms·

The federal government charges nothing for an EIN to establish your corporate entity. It's the individual states which have turned corporate filings into an arc

by zaroth 6y ago

The federal government charges nothing for an EIN to establish your corporate entity. It's the individual states which have turned corporate filings into an archaic profit center. The most frustrating part is that in theory every state expects a business to file as a foreign company if you are "doing business" in that state, which by their definition usually includes selling your product to anyone living in the state, even if the sale is done online. However, I personally don't know of any small startups that actually do this, and accounting costs of filing that many state tax returns would be absurd.

lmeyerov 6y ago
IMO one of the biggest impediments to remote work is this -- as soon as you have a remote employee, there is a good chance you need to register locally. That means time, money, and potentially fines for weird steps (tech platforms like gusto are insufficient in practice here.) 10-20 remote employees at 10-20 diff states, and more if they ever move, is such a PITA relative to small team size.
mguerville 6y ago
When I did startup M&A (for a larger corp) we found out the hard way that many profitable startups would not be if they actually paid the right taxes. They didn’t know and were too small (sub $10m in revenue) for the tax authorities to care but we walked away from deals because the cost of bringing them to compliance would kill the deal returns and we were too big to get away with it
koolba 6y ago
> The most frustrating part is that in theory every state expects a business to file as a foreign company if you are "doing business" in that state, which by their definition usually includes selling your product to anyone living in the state, even if the sale is done online. However, I personally don't know of any small startups that actually do this, and accounting costs of filing that many state tax returns would be absurd. That’s not how it works at all. You pay taxes based on where you have a nexus, such as an office. Having customers in other States does not mandate you pay corporate tax for their States. That would violate the interstate commerce clause. It’s even more of a stretch than trying to claim sales tax from out of State merchants.
- zaroth 6y ago
  I’d be very interested in reading a legal opinion on this specific topic. For example here’s one article discussing just CA for several pages [1] which includes a provision where you have to file if you have sales in-state in excess of $500,000 or 25% of your total sales, or paid compensation in excess of $50,000. It’s frankly an absurd situation even if you just wanted to figure out for yourself where you should file and how much you would have to pay. Paying someone to “do it right” nationwide would probably be a six-figure proposition. This is why, mostly, it isn’t actually ever done until you get past a certain size — maybe by 8 figures of revenue you consider possibly maybe dealing with it. Presumably the same laws apply even to international corporations “doing business in CA”, not just domestic US companies. [1] - https://sdcorporatelaw.com/business-newsletter/when-to-register-a-foreign-business-in-california/ https://sdcorporatelaw.com/business-newsletter/when-to-regis...
- FrobeniusTwist 6y ago
  > You pay taxes based on where you have a nexus, such as an office. That's true as far as it goes, but the requirements for "nexus" were significantly weakened a few years back by South Dakota v. Wayfair. It is no longer a constitutional requirement that a company have a physical presence in a state in order for there to be nexus. Having a sufficient number of customers in a state can definitely subject you to taxation by the state.

by zaroth 6y ago

lmeyerov 6y ago

IMO one of the biggest impediments to remote work is this -- as soon as you have a remote employee, there is a good chance you need to register locally. That means time, money, and potentially fines for weird steps (tech platforms like gusto are insufficient in practice here.) 10-20 remote employees at 10-20 diff states, and more if they ever move, is such a PITA relative to small team size.

mguerville 6y ago

When I did startup M&A (for a larger corp) we found out the hard way that many profitable startups would not be if they actually paid the right taxes. They didn’t know and were too small (sub $10m in revenue) for the tax authorities to care but we walked away from deals because the cost of bringing them to compliance would kill the deal returns and we were too big to get away with it

koolba 6y ago

> The most frustrating part is that in theory every state expects a business to file as a foreign company if you are "doing business" in that state, which by their definition usually includes selling your product to anyone living in the state, even if the sale is done online. However, I personally don't know of any small startups that actually do this, and accounting costs of filing that many state tax returns would be absurd. That’s not how it works at all. You pay taxes based on where you have a nexus, such as an office. Having customers in other States does not mandate you pay corporate tax for their States. That would violate the interstate commerce clause. It’s even more of a stretch than trying to claim sales tax from out of State merchants.

zaroth 6y ago
I’d be very interested in reading a legal opinion on this specific topic. For example here’s one article discussing just CA for several pages [1] which includes a provision where you have to file if you have sales in-state in excess of $500,000 or 25% of your total sales, or paid compensation in excess of $50,000. It’s frankly an absurd situation even if you just wanted to figure out for yourself where you should file and how much you would have to pay. Paying someone to “do it right” nationwide would probably be a six-figure proposition. This is why, mostly, it isn’t actually ever done until you get past a certain size — maybe by 8 figures of revenue you consider possibly maybe dealing with it. Presumably the same laws apply even to international corporations “doing business in CA”, not just domestic US companies. [1] - https://sdcorporatelaw.com/business-newsletter/when-to-register-a-foreign-business-in-california/ https://sdcorporatelaw.com/business-newsletter/when-to-regis...
FrobeniusTwist 6y ago
> You pay taxes based on where you have a nexus, such as an office. That's true as far as it goes, but the requirements for "nexus" were significantly weakened a few years back by South Dakota v. Wayfair. It is no longer a constitutional requirement that a company have a physical presence in a state in order for there to be nexus. Having a sufficient number of customers in a state can definitely subject you to taxation by the state.