In the old days, the home state corporation/Nevada corporation strategy was sold as something easy to do. In fact, corporation formation mills in Nevada became big business. You set up a Nevada corporation with a business presence (paying somewhere between $100 to $1,000 per year) and sent money to a Nevada bank account. Your home state couldn’t touch it and you just skipped out on a bunch of home state income tax. Well, it was never quite that simple, but the guys who sold you corporations would have liked for you to believe it was! With the expansion of the “Unitary Doctrine”, it’s becoming much more tricky to use a NV corporation properly.
The Unitary Doctrine, as upheld by the US Supreme Court, says that if a portion of your business activity is in another state outside of your home state, the home state can make you pay income tax on that income from the other state. It’s gotten even more involved. The latest wrinkle is that a business was located in one state and had a different activity Business in state #2 purchased a building which they sold. State #1 then wanted to tax the business on the gains on the real estate sold in state #2. It’s complicated, but an important question. If you’re using more than one state for your business, are you still liable for taxes in your home state? We’re discussing this in great detail over at the First Class Forum. If there’s anything to take away from this blog post, it’s tread carefully if you’re using a Nevada Business Presence. The rules have changed and not everybody is up on the changes. Be careful who you ask for advice!