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Legal definition of online business?

by NeverTooLate
14 replies
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So I'm mulling over whether to form a corp in another state or my own. It comes down to this: Can it be considered an online business or not?

If it is an online business, then incorporating in a more tax-friendly state like NV or WY is a better choice. If not an online business, then the state you reside and do most of your business in, is the better choice. This is per my research and discussion with an incorporation expert.

However I could not find info on what exactly defines an online business, for this purpose. Anyone know?
  • Profile picture of the author Joe Mobley
    I would question your incorporation expert.

    There is probably no legal definition of an Online Business.

    You can incorporate almost any type of business in almost any state or in another country.

    Are you making any money with your online business yet?

    Joe Mobley
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    • Profile picture of the author NeverTooLate
      Originally Posted by Joe Mobley View Post

      I would question your incorporation expert.

      There is probably no legal definition of an Online Business.

      You can incorporate almost any type of business in almost any state or in another country.

      Are you making any money with your online business yet?

      Joe Mobley
      Well, I'm starting a local marketing consulting biz. Not online, as far as I know what online is. Guess I should rephrase the question in another thread. Like this: Can a local consulting biz be an online biz? Forget it. I'm just going to see an attorney. Too difficult.

      From what I understand, it makes no sense to form an LLC in another state unless you are doing business in that state.
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      • Profile picture of the author Brian John
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        • Profile picture of the author kindsvater
          Originally Posted by Brian John View Post

          Don't ask me

          I don't have an answer off the top of my head, but it was, coincidentally, already on a list of research projects. But this is my early thought on the issue ...

          If you are sitting at home on your computer in New York, have incorporated in Nevada, and your web host is in Texas, it is reasonable to assume you would be considered doing business in New York.

          You're not doing squat in Nevada.

          However, if your Nevada corporation hires you as a contractor to do work for it, that might be a different matter. Although you are still sitting at home on your computer in New York, you are doing contract work for a Nevada corp. That could be construed as your Nevada Corp is doing business in Nevada.

          Ultimately, though, you need to eat. So that money comes back to you in New York from the Nevada corp and you get taxed on it anyway.

          ,
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      • Profile picture of the author seasoned
        Originally Posted by NeverTooLate View Post

        Well, I'm starting a local marketing consulting biz. Not online, as far as I know what online is. Guess I should rephrase the question in another thread. Like this: Can a local consulting biz be an online biz? Forget it. I'm just going to see an attorney. Too difficult.

        From what I understand, it makes no sense to form an LLC in another state unless you are doing business in that state.
        OK, your SIC would be: 541613 Marketing Consulting Services

        BTW a number of companies with that SIC happen to be ONLINE!

        Steve
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  • Profile picture of the author seasoned
    Yeah, there is NO way you will OFFICIALLY classify a business as an online business. That SIC would be *********SO********* large it would be just DUMB, and it would be subject to CHANGE!

    The SIMPLE, OBVIOUS, TRADITIONAL solution? Say that a given SIC is ONLINE!

    SO, ONLINE SCHOOL becomes SCHOOL, ONLINE! It is NOT an online business, but a SCHOOL that happens to be online.

    If you need licensing, training, etc... it would be for the SCHOOL.

    Steve
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  • Profile picture of the author seasoned
    One more thing. If you are not selling taxable goods in your state, you may not have to file any paperwork in your state, assuming you incorporate elsewhere, though they WIll want you to declare income. I BELIEVE that is only what you draw though. See a tax attorney or other qualified person.

    Steve
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  • Profile picture of the author Patrician
    I have looked into this a couple times and talked to a few tax people. I make my living 100% online for 9 years - they both discouraged me from incorporating because you do not save a dime for doing that - in fact you pay for incorporating every year -

    Unless you have extensive equipment and property to protect there is just no reason to do even LLC - I have also looked into 2 other forms of incorporation in the past.

    At least for California if you are sitting in California on your computer doing your work and you very cleverly think you will save a few dollars by incorporating in another state, well they will charge you a fee for doing that which you will pay to California.

    In fact you pay taxes not just as self-employed but FOR being self-employed. It's a real racket but I wouldn't trade it for the world.

    California state tax is insanely low (why we are always broke) - well that and we are do-gooders who welcome people illegally here on the sponge and etc.

    So I am saving money each year by not incorporating and just paying the state taxes.

    I also pay locally for a business license - why I do this - because I am stupidly honest, and I thought it would give me more legitimacy those first few years when I wasn't making much money - (I think it is 4 years you can deduct expenses for your business without making a profit) - after that it is considered a 'hobby' and as such is not deductible.
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    • Profile picture of the author Dennis Gaskill
      Originally Posted by Patrician View Post

      California state tax is insanely low (why we are always broke) - well that and we are do-gooders who welcome people illegally here on the sponge and etc.
      Are you talking about state income tax? If so, if I'm reading this right: http://www.taxadmin.org/fta/rate/ind_inc.pdf, there are only two states with higher income tax than CA, and only one if you count the surcharge on taxable income over 1 million.
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      Just when you think you've got it all figured out, someone changes the rules.

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  • Profile picture of the author seasoned
    Patrician,

    My father once created a company. It was TOTALLY LEGAL!!!!!!! It was left to languish. He had a partnership, supposedly the name was only three letters. He NEVER said what they were but, since they matched the earlier business, everyone assumed they were for THAT! He bought out his partners, and got full ownership of the company. One day, a guy came in, sat on the couch in the waiting area, and waited. When asked what he was there for he indicated that they didn't have a business license on file! Ironic, but they had to kind of merge the companies then and there ad convince the auditor it had always been that way. I believe they were in that area for over a decade!

    Eventually, they found out. HEY, he HAD been paying for it all that time, etc....

    The PRIMARY reason for a corporation or LLC is for LIABILITY. Both DO increase costs. In fact, if a corporation is a class C, it often removes deductions you COULD have made, making it even MORE expensive. But it is a MINOR expense to limit liability.

    Steve
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    • Profile picture of the author NeverTooLate
      Like Patrician, I've found this to be true for my state of MN as well:

      "Unless you have extensive equipment and property to protect there is just no reason to do even LLC".

      I understand Steve's (seasoned's) point too. But that's a rare situation. Can always change things too. Going with an assumed name registration, sole proprietor, in my own state. Simple, low-cost and appropriate.

      NTL
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      • Profile picture of the author seasoned
        Originally Posted by NeverTooLate View Post

        Like Patrician, I've found this to be true for my state of MN as well:

        "Unless you have extensive equipment and property to protect there is just no reason to do even LLC".

        I understand Steve's (seasoned's) point too. But that's a rare situation. Can always change things too. Going with an assumed name registration, sole proprietor, in my own state. Simple, low-cost and appropriate.

        NTL
        Actually, you CAN'T change things! The problem is that there has to be a history of a corporation or LLC PRECEEDING the setup for a lawsuit. So if you produce a product, sell it, incorporate, and someone later buys the product from you and sues for a defect, you may be in trouble. It is like insurance, and you can't have insurance bought after a car accident pay for your totalled car.

        Steve
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  • Profile picture of the author Patrician
    Originally Posted by Dennis Gaskill View Post

    Are you talking about state income tax? If so, if I'm reading this right: http://www.taxadmin.org/fta/rate/ind_inc.pdf, there are only two states with higher income tax than CA, and only one if you count the surcharge on taxable income over 1 million.

    well all i know dennis is the vast majority of my taxes are federal.

    Like a ratio of $5000 fed to $500 state.

    I can't believe we have high income tax compared to other states.

    I feel that I owe California for lots of reasons - that has to trump how angry I am at the government for what they spend our money on - and worse what they don't.

    (not state but I am practically frothing at the mouth about the feds taxing social security taxes - social security is not welfare or some entitlement program - it is money that they took in taxes in the first place and got to use throughout people's entire working career -

    ... and then when they retire 'the man' wants to tax that money AGAIN - at a time when many people will be hard pressed to figure out how to live on social security PITTANCE - especially if they lost all their other retirement savings in the circus known as the missing economy) - while simultaneously the 'pols' live high on the hog on our money "up there" in the Gutterment.

    better not comment on my comment the last part sounds 'political' - eewww
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    • Profile picture of the author Dennis Gaskill
      Originally Posted by Patrician View Post

      better not comment on my comment the last part sounds 'political' - eewww
      lol - I was thinking as I got deeper into your reply that I'd better not reply, then saw what you posted there -- 'nuff said!
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      Just when you think you've got it all figured out, someone changes the rules.

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