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Tax consequences of NV LLC when working in CA (me) & CO (my partner)

Asked by: Eric  — 17 November, 2011

My partner and I are starting a consulting business (50/50) ownership. I live in CA – he is in CO. Our projects are initially in TX, WI and Asia.

My questions:
1. If we incorporate in NV, do we need to set up a bank account there or does that not matter? (If it matters is CO or CA better for any reason?) Also, would we need an office in NV or could there be benefits in having one there?
2. I have read on this site establishing nexus and registering as foreign entity. Do we need to register in each state we provide services even though we live out of hotels while there?
3. Are there ways to avoid or reduce state or social security taxes?
4. This is not a question – just some additional info. My kids go to school in CA so that won’t change, and my partner has health issues to he needs to retain his healthcare eligibility if that impacts things with him in CO.

Thank you!

Answered by: admin  — 17 November, 2011


Let me answer your questions one by one:

1) You could register in Nevada (or any other incorporation friendly state such as Wyoming or Delaware) and open a bank account in any other state, provided you supply the banker with a letter stating the company does no business in that state. This way you avoid having to supply them with a proof of registration in the state.

If you have a choice of opening the bank account in California or Colorado I would do Colorado. In general, I would try to show as little activity in California as possible.

2) Question of nexus is a tricky one. Some activities would certainly create nexus, such as opening an office in a state. Then there are many activities that are more of a “grey area”. If you do a lot of business in a given state, which for example require lots of traveling, you might be establishing nexus in that state.

That doesn’t mean you have to register a foreign entity in every state where you do business, however the question of whether legally you are required to register in that state or another at any given time should be discussed with an attorney.

3) As far as taxes go I would recommend you to consult your accountant, as this is beyond the scope of our site. Just one thing to remember, usually state corporate income taxes do not apply to LLCs (unless its specifically elected to be taxed as C-Corporation), since LLCs are pass-though entities. The state taxes would apply only to you and your partner as individuals.

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