Most states have laws providing that a “foreign corporation” (i.e., a corporation or LLC formed under the laws of another state) may not “do business” within the state unless it qualifies under appropriate statutory provisions. Qualification usually entails registering with the Secretary of State or similar regulator, paying an initial and annual fee and providing certain basic information about the company.
The scope and extent of a company’s activities will govern whether qualification in a foreign state will be necessary. Typical activities that will require a corporation to qualify to do business in a state are: (1) transacting a substantial amount of its ordinary business in the state; (2) maintaining an active office in the state; and (3) manufacturing products in the state. However, activities of substantially less magnitude may also require qualification. You should talk to competent legal counsel about whether your company needs to “qualify” in another state.
Even if qualification is unnecessary, a company may be obligated to pay corporate income and other taxes (including sales and use taxes) because of operating in a state. For this purpose, “operating” in another state may include very limited and tenuous contacts; states are becoming increasingly aggressive in treating foreign corporations as subject to their taxing jurisdiction based on virtually any activity within their borders. If a company employs persons located in other states, it may be subject to employer wage withholding requirements, worker’s compensation requirements and other regulatory requirements. Note that the penalties in some states (like New York) for failing to secure worker’s compensation insurance can be severe. Further, if a company owns real or personal property in other states, it may be required to pay property taxes in such states.