Business Formation and Tax Nexus

[boilingh2o]

Hello everyone,

I'm glad to have found this wonderful forum filled with useful information and nice & knowledable people. We'd deeply appreciate if someone can provide us with some assistance on forming a business for our venture.

A friend of mine and I are thinking about starting an online retail business with two Chinese friends. We will take preorders of our products online and ship the orders directly from our supplier in China.

After some research, we are considering registering a Delaware member-managed LLC because of the relatively low franchise fee and simple formation process. But we have some pending issues:
- From my understanding, since none of us lives in the US (my friend and I are both living in China at the moment), technically our business will not have a tax nexus in any of the states. The business will be run completely outside of the country. Does that mean we will not need to collect sales tax?
- What will our business address be if none of us will be in the US? Can the business address be outside the country?

Thanks in advance!

[httpwebwitch]

Hi boilingh2o,

It would be bad for anyone but a lawyer to advise you about these things!

Perhaps an obvious question is: why do you need an LLC in the USA? Are there impediments that prevent you from running your business from China?

While it's likely that some WebmasterWorld members will have experience with these kinds of problems, I should warn that regardless of what advice you receive, you should consult with an expert (lawyer) before taking steps toward registering an LLC.

[votrechien]

Normally I would say you won't have nexus in any states because you're not shipping the products from the U.S.. However...

I get the sense you're trying to avoid having to register as a company in China which can be nasty. If laws are similar in China to most other parts of the world, this is probably an issue as you're likely a Chinese company (that's something you'd definitely want to seek a lawyer on though). But given that you're trying to disguise yourself as a U.S. company I would suspect this likely means that you're going to end up giving yourself a presence in Delaware and be responsible for remitting tax there.

One way or the other, your predicament is coming because you're trying to have your cake and eat it too :) You're either a Chinese company and you don't have to collect sales tax, or you're a U.S. company and you have to collect sales tax.


You're getting into ever grey areas, so you really want to take to a professional, but hopefully that gives you some room to start.

[boilingh2o]

Thanks for the wondeful replies!

We need to register for a company in the US because we are trying to do a crowfuding campaign (think Indiegogo, Kickstarter, etc.), and most of our future customers will be based in the US.

We will run our Chinese operations (procurement/project management/logistics) from a separate Chinese/HK company so we are not trying to disuise per se anything per se.

So in theory the US company will only collect payment from crowdfunding platform and procure from the Chinese/HK company, and all of these will be conducted by officers (US and non-US citizens) outside of the US. Would these somehow create a tax nexus in any of the states..?

[votrechien]

I don't know if that's enough to give you a presence and therefore nexus in Delaware. I would just call the department of revenue for Delaware and they Might be able to tell you for free (or any accountant specializing in this sort of thing could as well for a fee of course).

It shouldn't be that big of a deal regardless...Delaware customers are likely to be a very small fraction of your customers. And if you're really concerned, go base yourself in a state without sales tax.

[boilingh2o]

Yea we probably will not have that many customers in Delaware.

I'll try giving Department of Revenue for DE a call and see what they say.

Thanks!