What Constitutes Doing Business In Another State

Have you ever wondered what actually counts as "doing business" in another state, or perhaps another country? It's not as simple as just selling something across state lines or having a few customers here and there. The rules can get a little tricky, and they vary from state to state¹. Generally, if your company is actively trying to make sales in another state, you might be considered as "doing business" there, which means you could be required to register with that state, or follow their business laws².

So with that being said, let’s explore what really counts as doing business in another state and what steps you might need to take.

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What Constitutes Doing Business In A State?

So, what does it actually mean to be “doing business” in a state? Well, if your company regularly conducts activities in a state, like hiring employees, owning property, or selling products and services to customers, it might constitute “doing business” under that state’s laws². Even things like having a local sales rep, a warehouse, or frequently shipping goods could count³.

Why does this matter? Because states want to know who’s operating within their borders so they can apply taxes and regulations properly. If you're doing business there, you usually have to register with the state, which is called “foreign qualification”¹. It’s basically the state’s way of saying, “Hey, if you're making money here, we want to make sure you're playing by our rules.” Not registering can lead to fines or even being barred from legal action in that state².

What Is Foreign Qualification?

Foreign qualification might sound international, perhaps, but in this context, it actually refers to operating your company in a state other than the one where you originally registered¹. So, let’s say you registered your business in New York, but you want to expand into another U.S. state, you’ll likely need to file for foreign qualification there. Keep in mind, it does also apply to foreign companies looking to set up in the US, and thus in a specific State.

It’s what’s needed to register in another state and make things official with the local government. The process usually involves paperwork, filing fees, and appointing a registered agent in that state². Without it, you could face penalties or get barred from doing business legally. Each state has its own rules on when foreign qualification is required, but generally, if you’re hiring employees, leasing property, or actively selling in that state, it’s a must³.

Doing Business In The US As A Foreign Company

Doing business in the U.S. as a foreign company can be both exciting and challenging. On one hand, you're stepping into one of the largest and most dynamic markets in the world, full of opportunity. On the other, there are a lot of rules, regulations, and other nuances to understand. So, what is required to do business in the US?

1. Register Your Business
   Register with the appropriate state (or states) where you’ll be operating.
2. Get an EIN (Employer Identification Number)
   This is your business’s tax ID, and it’s required for taxes, opening a bank account, and hiring employees.
3. Open a U.S. Business Bank Account
   Keeps your finances separate and helps build business credit.
4. Understand U.S. Tax Obligations
   Includes federal, state, and possibly local taxes.

Securing US Business Licenses And Permits

Depending on your business structure, and the state in which you intend on operating, you may be required to secure additional licenses or permits to legally operate your business in a specific industry:

You should also work on building trust with local partners, understanding American consumer behavior, and adapting your brand to a different market, which will help you become successful. Thankfully, there are plenty of resources and advisors who specialize in helping international companies get set up in the U.S. Tools such as Wise Business can help you send and receive international payments, and manage business expenses with ease.

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What Are The Implications Of Operating A Multi-State Business?

Running a business across multiple states can sound exciting if you want to expand into one of the best and biggest markets in the world, but there is a lot of work to get properly set up. Expanding into the US comes with its own set of challenges and a whole lot of paperwork.

The first thing you’ll need to do is register your business in each state where you’re actively operating, that is called foreign qualification¹. It basically means extra paperwork and fees to stay compliant.

You also need to consider the tax side of things. You might owe income, sales, or employment taxes in multiple states, and each one has its own rules². It can get complicated fast if you're not careful. On top of that, employment laws differ from state to state, so hiring employees in various locations means understanding different labour standards. The positives to all of this are that you can open up new markets and growth opportunities for your business, which is the end goal.

FAQ’s About Doing Business In Another State

Do I need to register in multiple states?

Possibly, yes. If you plan to hire employees or sell products in a specific state, you'll likely need to register there as a “foreign entity” or “foreign corporation.”

Can a company be incorporated in two states?

No, a company can only be incorporated in one state. However, it can register as a foreign entity in other states where it does business. This allows the company to legally operate in multiple states while maintaining a single state of incorporation².

Can I sell online to another state without registering there?

Yes, usually. Just having customers in another state doesn’t necessarily mean you're “doing business” there, unless you're also physically operating or targeting that state³.

Do I need to register my business in another state?

Yes. Licenses and permits are often state (or even city) specific, so you’ll likely need to apply separately in each location you plan to do business in.

Final Thoughts

In the end, figuring out what counts as “doing business” in another state isn’t always black and white. It really depends on the details. Regularly making sales, having employees, opening an office, or even just maintaining a warehouse in another state could mean your business is crossing that line, and once that happens, you might need to register with the state, pay taxes there, or follow local rules².

Don’t guess. It is absolutely imperative to do your research and take a close look at how your business operates, where your customers are, and where you have a physical or economic presence. If you're unsure, talking with a business attorney or a tax professional can save you a lot of headaches (and money) down the road.

Save Time and Money On Overseas Payments With Wise Business

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Sources:

1. How to qualify to do business in another state, a 50 state guide | Lexis Nexis
2. When to Register in a State – What Is the Definition of “Doing Business” in a State?| Kavinoky Cook
3. What constitutes “doing business” in another state? Five signs you might be crossing the (state) line | Wolter Skluwer