What is Foreign Authority?

A corporation or LLC requests "Foreign Authority" or the Authority to Do Business   

 

in a state, when it (the INC or LLC) has a physical presence in that state, in addition to its formation state (or country).  To obtain foreign authority, the entity must file an authority form to the "foreign" state, usually a certificate of status and/or certified copy of the filing documents from the formation state or country.

 

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For example, if your corporation was formed in Wyoming and it is now operating in and has physical presence in California, you corporation would need to file for foreign authority in California.  Along with an application, the corporation would need to submit $100 and a certificate of good standing from Wyoming, showing that the corporation was currently in good standing.  Upon filing in the foreign state, the corporation could then legally operate within the laws of California, but would then be subject to taxation in California for all income generated there.

 

 

 

When is there Physical Presence?

This is often a point of much argument.   If a corporation has a charter in Nevada, its servers in California, it customers on the East Coast and the owners in Washington & Illinois, must it file for authority in any of those states?

What it comes down to is a concept called physical presence (lawyers call it nexus). If the entity is physically present in another state (other than the state in which it is formed), then it must file for foreign authority in that other state. This question is easily answered when it's say a retail store that operates in Oregon and now wants to open up stores in Washington. In that case, before the new stores are opened and staff is hired (all proof of physical presence), the entity that owns and manages that business will need to file for foreign authority.

So what about a web-based business?
Now we get into the grey area, because it can be argued that a web-based business has no physical presence anywhere, right? Wrong! Who's operating the company? Is it you? Let's say for instance that you formed an LLC in Wyoming, but you live in California. Your reasoning is that if you simply formed in another state, outside of California, you wouldn't have to pay their insane taxes. The problem with that is that you still reside in California. And because you conduct business in California (i.e. banking, writing checks, paying with a credit card connected to a CA address, etc.), the state will consider your LLC has physical presence, through you! In this case, you would have to register in California too.

Still not sure?
Ask your accountant or CPA. Because the Supreme Court walked away from this issue in 2014, it is now up to each state to define physical presence, and many are through its taxation rules. Additionally, there is more rumbling about an Internet Sales Tax coming out of Washington soon, which will redefine this whole issue. Regardless, it is your tax advisor who can direct you on this issue.

If you do determine that your entity needs to file a foreign authority with another state, then we can help. Call us (1-866-246-2669) or write us and let us know what you need.

 

What do you get with SmallBiZ Foreign Authority Service?

This is generally an assistance level service, that is we assist you with the prepration of the forms so that you can file them yourself:

  • Prepare the foreign authority form(s)
  • Obtain required certificates*
  • Provide simple instructions for review 
  • Provide mailer to the foreign state agency

We send to you all forms & certificates, ready to file.   Simply review, sign, attach a check for the state fees, and send in the mailer we provide to your foreign state.

(For only $75)

    

Related Articles & Pages

How to move your Corporation to another state? 

How to move your LLC to another state?

How to change your C Corp. to an S Corp.?

How to convert your LLC to an S Corporation?