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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 13475
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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We want to understand in what state it would be best to operate

Resolved Question:

We want to understand in what state it would be best to operate from in the case of a IT consulting firm with customers in:
- California
- Florida
- Massachusetts
- Rhode Island
- Chicago

We do work:
- mainly by contractors who don't live in the US
- sometimes contractors, who we hire, fly into US and do paid work on premises of the client

Now we are thinking of registering our offices in New York. Would that be a wise thing to do from a interstate tax point of view? Or are there other states that have better taxation relating to custom IT programming services?
Submitted: 11 months ago.
Category: Finance
Expert:  Megan C replied 11 months ago.

Megan C :

Thank you for your question, and thanks for using JustAnswer.com

Megan C :

How are you today?

Megan C :

First and foremost, I would operate in a state with no income tax, such as Florida

Megan C :

But corporations do pay income tax in Florida

Megan C :

New York is a good option. It's important to note that if you provide services in another state, you don't always owe income tax in that state.

Megan C :

If it is temporary work, then there would be no income tax due to the state.

Megan C :

Also, by utilizing contractors that are non-US persons, you don't have to report 1099 information for these vendors,

Megan C :

So for example, say you have offices in New York and you do a job in California for 3 weeks and fly a non-US contractor there, then there is no tax owed to California, and no tax due to the US for the non-US vendor.

Megan C :

However, if you had longer term engagements, like those that last several months, then you would be likely considered as doing business in that state, and would have to pay tax on the activity you provide there.

Megan C :

A state such as Nevada or Wyoming does not have corporate income tax, so if you are open to having locations in one of those states that could be a viable alternative to New York.

Megan C :

Please follow up with me with more detailed information. We can continue this live chat at your convenience, just let me know. If I have answered your question, please respond and let me know if I have provided you with excellent service.

Customer:

"So for example, say you have offices in New York and you do a job in California for 3 weeks and fly a non-US contractor there, then there is no tax owed to California, and no tax due to the US for the non-US vendor."

Can you point me in some direction where this is stated?

Megan C : You would have to research each state and determine what their definition of doing business in the state is.
Customer:

Yes, we have had some tax lawyers do an analysis and they say that the non-US contractors do have income tax nexus in various states. So what would you do to find out the best state to setup office?

Megan C :

You could look to see which states have lower income tax rates on corporations. Or have no corporate tax at all. Nevada does not have a corporate income tax, so that is a friendly state.

Customer:

And from a interstate tax point of view, probably it doesn't matter in what state you operate New York or Nevada. I mean if our contractors would have income tax nexus in a certain state (when they go to work on the premises of our clients), then it doesn't matter if our office is in New York or Nevada right?

Megan C :

That is correct

Megan C :

It just matters in terms of overall - wherever you have your office, you will pay tax on 100% of your profits

Megan C :

no matter what state it comes from

Customer:

So Nevada is a good option from your point of view. Are there any other states that don't have corporate income tax?

Megan C :

Wyoming is one...

Megan C :

In states where there are large business centers (like NYC, Los Angeles, etc) there will be corporate income tax.

Megan C :

Nevada does not because they get so much revenue from gambling taxese

Customer:

Do you know if there are big differences in corporate income taxes between the different states? Does New York have a high rate compared with other states?

Megan C :

They are fairly comparable

Customer:

Great, final question, can you point me to where I can find corporate income tax rates of New York / New Jersey / California?

Megan C :

http://www.taxadmin.org/fta/rate/corp_inc.pdf

Megan C :

There's a PDF flyer of the state corporate tax rates

Customer:

Great!

Megan C :

Glad I could help

Megan C :

Is there anything else I could assist you with today?

Customer:

Thank you ... I think I have enough answers for now to continue my analysis.

Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 13475
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and other Finance Specialists are ready to help you
Expert:  Megan C replied 11 months ago.
Thanks, Ha for your positive rating. Please come back and visit me any time you have a tax, finance, or social security question that needs answered. It was a pleasure working with you today.
Customer: replied 11 months ago.

Thank you Megan!

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