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Irwin Law
Irwin Law, Attorney
Category: Business Law
Satisfied Customers: 6911
Experience:  30+ yrs. representing small business, real estate, probate
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I started selling virtual goods online for a massively multiplayer

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I started selling virtual goods online for a massively multiplayer online game with a partner who resides in another state. We looked into incorporating for tax purposes, but are left with the question of which state to incorporate in. The problem lies in the question, "what constitutes doing business in a state." Our business would maintain no physical presence, we don't advertise directly to residents of either of our states, we don't exchange any tangible goods and the majority of our customers come via an intermediary website that functions like ebay. None of their personal information is shared with us, so there's no way for us to even know if we're selling goods or services to people in our resident states. We were thinking of incorporating in Delaware for the tax benefits, but the same question of doing business with a state applies. As far as I can tell, laws regarding virtual goods are largely unwritten, so how do I go about reporting the income without being surprised by one government entity or another demanding back taxes at some point?

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Customer:

One of the most important issues to us is whether we'll have to register our LLC with each of our states of residence. As I understand it, we're required to pay ourselves a wage, so our LLC would have employees working in two different states. Does having an employee in a state count as "doing business in" the state, even though the employee works from home and does the entirety of their job is working online?

Hello. Another expert here. Perhaps I can assist in this answer. Being a member of an LLC or a shareholder of a corporation does not require the entity to register to do business in that persons state of residence. You only have to register the business in states where you actively do business. That doesn't include mail order or on line sales. You should check on the sales tax aspects of your business though because that might be an issue, depending on the nature of your business.

I hope this information is helpful and that you will enter a positive rating. I thank you for submitting your question to Pearl-Just Answer. We appreciate your business. If you need clarification or additional information, please send me a Reply and I will be happy to explain further. Please consult a local attorney to verify the accuracy of this information according to your state's laws.

Customer: replied 3 years ago.

If I'm required to pay myself a wage, however, wouldn't I need to register the LLC with my state of residence in order to receive a state employer id number for tax purposes? Or do I only file my income with the state I incorporated in, ignoring my state of residence?

Your corp or llc files taxes with the state of incorporation or registration. You file personal income tax in the state where you live. You will receive a K-1,1099 or other notification of wages that are paid to you which you file with your personal income tax return.I hope this Answer is helpful and that you will give it a positive rating. If you have any follow up questions please send back a Reply. You should consult a local attorney to verify that this information is accurate for your state. Thank you for using Pearl.com- Just Answer. We appreciate your business.
Irwin Law, Attorney
Category: Business Law
Satisfied Customers: 6911
Experience: 30+ yrs. representing small business, real estate, probate
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