What does it mean to be doing business in a state?

If this is the case with your company, then you may need to “qualify as a foreigner” within that state. Your LLC or corporation must qualify to do business in any state where you participate in business within the state.

What does it mean to be doing business in a state?

If this is the case with your company, then you may need to “qualify as a foreigner” within that state. Your LLC or corporation must qualify to do business in any state where you participate in business within the state. This means that at least part of your business is conducted entirely within that state's borders. For example, if your company has a warehouse in another state and you sell and ship from that warehouse to customers within that state, you participate in in-state business in that state.

What Constitutes Doing Business also provides guidelines on what constitutes doing business in Canada, Guam, Puerto Rico and the Virgin Islands. Second, conducting business in multiple states adds complexity to calculating business tax liability. Things get muddy when business owners have to decide what constitutes “doing business,” so it's important for business owners to understand the risks of playing fast and loose with foreign qualification. For some corporations, it may be obvious when your business operates a store or store to conduct regular business in a state, as was the case with Moe's Southwest Grill restaurant.

What all this means is that to avoid potential unexpected fines and taxes, it's a good idea for business owners to research a state's policies regarding exempt business activities that don't require foreign qualification. What Constitutes Doing Business defines what constitutes doing business by a corporation in states foreign to the state of its incorporation. If a company chooses Delaware as its formation state, for example, it can continue to operate in another state. The company must also pay sales tax for any consummate sales in the state if the company has a significant presence in that state.

The substantive laws of the home state governing the organization and maintenance of the business entity shall continue to apply to the company's operations in the foreign state. On the other hand, a state cannot force you to qualify or pay taxes in that state if you only participate in interstate business with other states, which means that all of your business is conducted across state lines. While all states require foreign corporations doing business in the state to qualify, no law contains a comprehensive definition of the term doing business. All states offer some form of “safe harbor” with respect to commercial transactions that do not deserve foreign qualification, something like a gray area for what constitutes doing business.

If you come to the conclusion that your activities could be considered intrastate business in some states, it's best to qualify to do business in those states.