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The Nevada Myth: Rethinking the Nevada Corporation

September 23rd, 2022

After you have decided that incorporating is beneficial for your business,Guest Posting some people consider incorporating in states outside of their home state. Most notably, Nevada has been promoted by many “incorporating services” as having incredible benefits as opposed to the client’s home state. Other states such as Delaware and more recently Wyoming have also received consideration for incorporating. In some cases, depending on the facts of your business, there are some benefits in forming an out-of-the-home-state corporation in states such as Nevada. However, in the majority of cases the benefits of forming a Nevada corporation is simply a myth and will often be more expensive and troublesome than filing in the company’s home state.

Law of the Land: Foreign Entities

This may be a surprise to many, typically, corporations will be governed under California law despite being incorporated in Nevada. Let’s assume you do file a Nevada, yet you operate all of your business in California. Under this scenario, you are deemed to be a “pseudo foreign” corporation. If the corporation is a pseudo foreign corporation, California law in many areas will supersede the law of the state where the company was incorporated in. (See California Corporation Code §2115(b)). Therefore, for companies entirely based in California and doing business in California, practically all of the claimed benefits of incorporating in Nevada are out the window. It should be noted that if a Nevada corporation operating in California fails to qualify as foreign corporation, it may be subject to a number of sanctions. (See California Corporation Code §§2203, 2258, 2259).

Nevada v. California

The benefits typically touted by a Nevada corporation are the following: lower costs; tax savings; and greater privacy. But is any of it true? Below we will discuss some of these issues.

Expense: Contrary to what many people believe, it is more expensive to file in Nevada than in California. Here are some of the additional expenses: the initial filing fee is more; the Statement of Information is much more; you will be required to file a Statement and Designation of Foreign Corporation in California; and you will be required to hire a Nevada Agent for Service of Process each year. For large clients, the additional cost (of approximately $500 more) is not a big consideration, but for smaller businesses every dollar counts.

Taxes: The tax ramifications is usually one of the most important reasons for deciding whether to incorporate and where. Nevada’s secretary of state website says that Nevada has none of the following: (1) corporate income tax; (2) taxes on corporate shares; (3) franchise tax; and (4) no personal income tax. So how does this actually play out? The bottom line is if you are doing business anywhere other than Nevada, you will still be required to pay taxes in the state where you are conducting business. So if you are operating and generating business in Nevada, this can be a huge benefit, otherwise if you are generating money in California, you are required to pay California’s taxes. Furthermore, any income earned by a Nevada business and paid out to a resident of another state will be subjected to the taxation of that state. Therefore, the income passed on to the shareholders of an S-Corporation in Nevada will be taxed at both the federal level and in the state where the shareholder lives (this also applies to other pass-through entities such as LLCs).

Every Nevada Business Owner Needs to Understand State Taxes

March 15th, 2022

Business owners in Nevada are not assessed a tax on either personal or business income. However, there are other state taxes that you need to know and understand. The majority of these taxes depend on the type of industry your business is in. Below are a few state taxes that you need to know about. Understanding these taxes will help you with you manage your business’ finances.

Quarterly Modified Business Tax (MBT)

This is an excise tax imposed on all Nevada employers. It is based on reporting employee gross wages after taking a qualified deduction for employer paid health insurance benefits. The tax is presented as a tiered rate having a.5 percent rate on the first $62,500 of wages per each quarter. The rate rises to 1.17 percent above $62,500. Partial tax abatements are available for qualifying start-ups. Businesses can apply for a 50 percent rebate during the first four years of operation.

Gambling Industry Business Taxes

Several types of fees and state taxes are imposed upon the state’s gaming industry. Fees are collected for licensing required to be obtained by every employee conducting gambling events. State taxes on gambling establishments are based on the number of machines and gaming tables in operation and an establishment’s gross revenue. Additionally, a casino entertainment state business tax of 10 percent is imposed on all revenue from admissions, food, and other refreshments.

Sales Taxes

Nevada imposes state taxes on all businesses selling tangible personal property at the retail level. In addition, state taxes are imposed on the storage, use and consumption of all tangible personal property. This tax relates strictly to tangible personal property for sale or use and does not include revenue related to services supplied such as attorney or doctor fees. The typical sales and use tax is 6.5 percent but has been temporarily raised to 6.85 percent covering the time from July 1, 2009 through June 30, 2011. In addition, leases are considered tangible property sales and are subject to state taxes.

Use Taxes

Use taxes are imposed upon property acquired out-of-state that would be subject to sales taxes if the transaction had occurred in Nevada. Use taxes never apply to property where a sales tax has been collected. Responsibility for collecting and remitting a use tax remains the liability of the property user unless this tax has been paid to a retailer, and a user has receipt confirmation.

Taxable Items and Transactions

The following are items and transactions subject to Nevada sales tax:

Production and processing of finished products created for consumers.
Food and drink preparation and serving.
Furnishing and processing personal property by social clubs.
Property transferred but where a title is retained as security for payment.
Transfers of property for title consideration that has been produced, fabricated, processed or printed to special order for a customer or publication.
Sales of company assets by a registered seller.

You can try to manage all of these taxes by yourself, but a CPA should conduct a careful examination of all state tax laws affecting your business