Are you a business owner wondering whether you need to register your business to do business in a different state other than where your entity was formed? I'm going to give you a few tips as to when you definitely should register your business to do business in another state and a couple of situations where it's not so clear and you might want to consult somebody.
Before I even get into those, what does registering your business in another state even mean? Let's say that you formed your entity in Maryland and also you do business in Pennsylvania. This doesn't mean that you have to go form a separate entity in Pennsylvania, it just means that your existing entity has to register to do business in Pennsylvania, kind of like getting a license or a passport. Your entity remains a Maryland entity, but you're authorized by the Pennsylvania Secretary of State to do business there.
So what are the situations where you should register your business to do business in another state? There are a couple of very clear situations and some unclear situations. When you have a physical location in another state, you definitely should register to do business there. If you have salespeople who regularly go into a different state or territory, even if you don't have a physical location there, you may want to do the same. Further, if you have a business partner or another owner LLC—whether you're an LLC or a corporation—who lives in another state and conducts a lot of your entity's business in that state, you really should think about registering that business there, as well.
The internet provides a lot of situations where it's really hard to determine whether you do need to register to do business in another state or not. One of the most common of these is having an employee in another state; it happens very frequently, and the teleworking that we are doing right now is probably going to make it even more common. In that situation, you really need to look at the specific state rules. Another situation that is similarly unclear is if you continuously sell products that are shipped into a particular state (this doesn't apply if you're just an online seller shipping into various states). Let's say that you are selling a specific type of product that is only using coastal areas, and you continuously do business in Florida, Georgia, and South Carolina. In that situation, you may need to register in those various states. Again, it might not be so clear; you need to look at those states' regulations to be sure.
The upshot is that there are definitely situations where you must register to do business and there are a number of situations that are not so clear. If you end up in a situation where it's not so clear, I would love for you to give me a call.
KATHERINE L. TAYLOR, ATTORNEY AND CPA
5850 Waterloo Rd