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Dec 29
2008

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What is the best state for me to form an LLC for an e-business catering to people around the country?

I live in CA and am trying to avoid the $800 franchise tax. I have access to physical addresses in Oregon for free and in Washington for $120/year. This e-business probably won’t make any money in the first year. What would be the best state to form an LLC for this business? Obviously, keeping costs and taxes low are important to me. Thanks!

Here is the thing, many business owners are claiming to be an e-commerce business attempting to avoid the $800.00 franchise tax; however, many are actually operating within the State of California. Being caught operating within the State of California while claiming to be domiciled in another State will cost you far greater than the $800.00 franchise tax.

Here are some questions that can help determine if you should be filed in California:
1. Will you have a physical location where you or employees will be working from?
2. Are you required to hold a “special” licensing? i.e. construction, beauty, professional, real estate
3. Will you be hiring W2 employees?
4. Will your business be shipping products directly to clients, once they have purchased them off your website?
5. Will you be storing tangible products?
6. Will the entity own real property?

If you answer yes to any of these questions than you MUST register to transact business in CA no matter where you form the LLC. So it maybe more cost effective to simply form a CA entity; however, I would not suggest filing a CA LLC. The CA LLC has to pay a gross receipts tax. So I would suggest a Corporation which will only pay the $800.00 franchise tax; unless profits are above $10K.

If you answer no to any of the questions that you could from and claim domicile in any State you would like. However, if you would like tax benefits and asset protection benefits I would go with Nevada. As Nevada has no corporate taxes and gives the absolute best asset protection to it’s LLCs. You will have to maintain a registered agent in Nevada; however, you can find someone for $50.00 or less. The Secretary of State cost is $125.00 for the annual list of officers. Then the Business License is $200.00. So expect to pay about $400.00 a year to maintain the entity.

I hope this helps!