Relocating a business to a new state is no easy feat. In some ways, can generate almost as much stress as starting out did in the first place — there is a location to be selected, a new local market to understand, business plans to be written, and regulatory mazes to be navigated, not to mention the actual business of moving.
All that said, done properly and with prior planning, the process of re-locating your business needn’t be quite the headache you might anticipate.
Here is a small business checklist that should shed some light on the regulatory side of relocating your business to a new state. From corporate structure issues to tax ramifications to business registration and licensing, these tips should keep your business compliant as you venture into new pastures.
1. Before You Move – Consider Your Business Structure
If you are a sole proprietor (for example a freelancer or independent contractor who is personally liable for all business debts and obligations) moving to a new state is relatively easy. The only impact on your chosen business structure is that you will need to file a “doing business as” business name registration with your new state. Business.gov explains how to do this here.
If you are relocating a corporation, you have several options:
- Continue as a corporation in your former state and register as a foreign or outside corporation doing business in your new state. This option can be costly since you may incur fees in both states (especially if you operate a franchise).
- Dissolve the corporation in the old state and form a corporation in the new state. Sounds easy, but it can have costly tax consequences and may also impact employee benefits such as retirement plans.
- Form a new corporation in the new state and merge the old corporation into it. This can have benefits as it eradicates the need to pay fees in two states and can result in a tax-free reorganization.
If you operate a corporation, be sure to talk to your lawyer about which option is most appropriate for you – before you move!
LLCs have more options available to them when it comes to handling a relocation:
- Continue as an LLC in your former state and register to do business as a foreign or outside LLC in your new state. Again, this can result in paying fees in two states and complicate your taxes.
- Liquidate or dissolve the LLC in your former state and form an LLC in your new state. This does not incur any tax consequences.
- Establish an LLC in your new state and then have members contribute their membership interests from the original LLC.
- Establish an LLC in your new state and merge the existing LLC into it. This is relatively smooth from a tax standpoint as long as the original owners of the LLC maintain at least 50 percent of their stake in the new LLC.
For more information on the impact that business structure can have on your small business tax and regulatory obligations, refer to this Business Incorporation Guide from Business.gov. If you decide to change the structure of your business, refer to this IRS guide to understand your tax responsibilities.
2. After You Move — Legalize Your Business Presence in Your New State
Moving to a new state can represent a serious case of deja vu for many small business owners. Like you did as a start-up, you’ll need to apply for all the applicable licenses and permits as well as register with state and local tax regulations. Below are the key regulatory checklist items you’ll need to take care of once you have relocated:
- Register for business licenses and permits with your new local government. This quick online tool from the government will show you what licenses and permits you need based on your business type and zip code.
- Register for a “doing business as” permit (if you do business using any name other than your own).
- Contact your local revenue agency to understand city and county business tax requirements and apply for a new tax identification number.
- Take care of your responsibilities as an employer. Visit your state’s Web site to take care of worker’s compensation insurance, disability insurance, and unemployment insurance.
3. Relocation and Federal Taxes – Don’t Forget to Tell Uncle Sam
There are several federal tax consequences to consider before and after you re-locate your business to a new state. Since each business is unique, talk to a tax expert to get a quick grasp of your business tax responsibilities in the first year of your move.
Also, don’t overlook the fact that once tax season arrives you can deduct or capitalize the costs incurred during business relocation including moving costs, relocation site “scouting” trips, and travel and meeting costs. Get more guidance on small business expenses and tax deductions here.
- Relocate Your Business – This SCORE article discusses the cost issues, relocation results, lease options, and the business moving process.
- Which State Is Best for My Small Business? – Every state has different rules (taxes, employee benefits, etc). Determining which state to establish your small business in is a big, and sometimes complicated, decision to make.
- Doing Business in Your Town: Navigating the State and Local Government Maze (Allbusiness.com) – Explains e-government initiatives that make it easier for small businesses to navigate the maze of state and local regulations.