When a business entity wants to operate in another state, it generally
must obtain a certificate of authority to do business from that
state's Secretary of State.
Its important to determine if registering to do business within a
state is necessary. It's not a decision to make lightly because it
will likely trigger inquiries by the states tax agency as to whether
the corporation should be subject to tax there. On the other hand,
doing business in a state without registering can result in penalties
or corrective action by the state authorities. Many states bar
unregistered business entities from maintaining a lawsuit in their
courts until the business entity registers to do business and pays all
outstanding taxes. In New York, for example, the attorney general has
the authority to restrain an unregistered business entity from
transacting business within its borders.
What constitutes doing business in a state? Unfortunately, the answer
varies from state to state and is sometimes unclear. Most states
maintain a list of safe harbor activities that do NOT constitute doing
business. A type of activity that is often included on these lists is
maintaining a bank account within a state's borders. Many state
statutes don't specifically define what they consider to be doing
business in their jurisdiction. It usually depends on the facts of
Opening a store in a state would constitute doing business in any
state. But its harder to find definitive answers to questions such as
whether hiring an employee who telecommutes from a state would be
considered to be transacting business there.
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