I live in NY, but NY is one of the most highly taxed states in the country.
I am going to be forming an LLC, and I know Delaware and Nevada always come up as favorable places, but it's my understanding that where the company conducts its business is where it's taxed, not necessarily where it's incorporated.
Is that true? I mean if I have a DE LLC and conduct business from NY I have to pay NY taxes regardless? Then what is the advantage?
If it is the case for let's say DE or NV LLCs, what about PA or OH? I'm not terribly far from either. Do you know if either has more favorable taxation than NY?
In any state other than NY, would having an agent with a mailing address there be sufficient to avoid NYS taxes?
You see what I'm getting at. I'm not looking to cheat, but I am aware that forming a business in NY is most likely going to cause my business to fail under the burden of taxation.
Thanks,
Net
2 Answers from Attorneys
If a LLC conducts business in New York State, the members are required to report taxable income to New York State. A member who resides in New York state must report his share of the income earned by the LLC. This is so even if the LLC is formed under the laws of some other state.
I agree with Norman. Taxation is based upon where the income is earned or generated, not where the entity is formed. Further, you do not indicate if you have registered the DE LLC in NY, where you conduct the business. If you are not authorized to do business in NY, by having the LLC registered there, you have no standing if you need to sue anyone in the business name in NY. FYI, many people form a business in DE or another state, as the laws on the governance of the entity may be more liberal in one location over an other, but this has nothing to do with taxation of the entity's earnings.
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