Domestic vs Foreign Authority

I am not a lawyer, but here are my investigations on Domestic vs Foreign Authority. In essence, when you file paperwork in a location to create a LLC or corporation, that state is now the company's "domestic authority". That is where the company lives. Even if you live somewhere else, in another state. If you then want to conduct business in a state other than the domestic home of your corporation, you may need to file for "foreign authority" in that second state - even if it is the state you actually live in.

There are many, many reasons to create your corporation in a state you don't live in. Your home state might have incredibly high filing fees, or really nasty tax consequences for corporations and LLCs. Your home state might require you to list your personal information in a way that it becomes public, vs staying anonymous. Your home state might require that you have $1,000 or more in your bank account before you create the corporation.

What is the deal with a foreign authority, then? It all comes down to taxes. Let's say you live in New York and run a rug cleaning company. You file your LLC papers in Delaware and you happen to live on the border of New York and Connecticut so you do all your business in Connecticut. You even rent a small office building in Connecticut and hire a receptionist for it. You are therefore earning a ton of money (assuming you are successful) in Connecticut. Connecticut will probably decide it wants its fair share of the taxes on all that money you earned on their soil.

Every single state has its own rules and regulations about what consitutes enough activity within their borders for them to start wanting to collect tax from you. Some basic guidelines are that if you are collecting sales tax / paying employees in a state, or have a physical office there, they want you hooked into their tax system for accountability. Note that your home office can easily count as a 'physical office' as far as them wanting you to have a registration of some sort in that state.

The issue doesn't even necessarily come down to taxes for you. It might be that you will owe no taxes to a given state even if you end up filing a foreign authority entry. However, the state will charge you for that filing - anywhere up to $600 for the first year and multiple hundreds each subsequent year. So that is how they make their money - by hitting up all foreign companies for these filing fees.

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