If your company is involved in any kind of business within a state, it may be necessary to qualify as a foreign entity in that state. This means that at least part of your business is conducted entirely within the 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 are participating in in-state business. It can be difficult to determine what constitutes “doing business”, so it's important for business owners to understand the risks of not qualifying as a foreign entity.
Most states have similar business entity laws and common law, and conducting business in multiple states can make it more complicated to calculate business tax liability. If the company is simply incidental to a larger interstate commercial operation, they may not need to qualify. The company's physical presence within the state (such as having an office or owning property) is an important factor when determining if an activity constitutes doing business. It's best to find out the rules of the states in which your company participates in any intrastate 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. Most states provide lists of “safe harbors” that do not constitute doing business, such as paying sales tax for any consummate sales in the state if the company has a significant presence there. Each state has its own variations on when a company should qualify as a foreign (out-of-state) corporation or LLC, but they all follow this same basic principle: Companies must qualify in a state if they participate in in-state business in that state. No law contains a comprehensive definition of the term “doing business”, but What Constitutes Doing Business provides guidelines on what constitutes doing business in Canada, Guam, Puerto Rico and the Virgin Islands.
