Can a Sole Proprietor Have a Business in Multiple States?

By Cindy DeRuyter, J.D.

Can a Sole Proprietor Have a Business in Multiple States?

By Cindy DeRuyter, J.D.

If you established your business as a sole proprietorship, you probably did so in part because it was easy, fast, and relatively inexpensive. Over time, many business owners decide that it makes sense to expand their reach so they can serve customers located in additional states. As is the case with entrepreneurs organized as corporate entities, limited liability companies, and partnerships, sole proprietors can conduct business in multiple states. Each state's business laws determine whether sole proprietors must register with the state's Secretary of State or other business authority. As the business owner, the onus is on you to ensure you meet all applicable state registration and licensing requirements and that you understand your tax obligations.

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Registration and Licensing Requirements

Before conducting business in a new state, find out what that state's business registration requirements entail. Many, but not all, states require sole proprietors to register their business entities. Registration provides the states with, at a minimum, the owner's name and contact information. You may also need to comply with state-, county-, or municipal licensing requirements in each geographic area where you intend to operate.

If your business uses a DBA ("doing business as") or fictitious name, you will likely also need to take additional action to register the DBA name with the state or specific counties where you will conduct business. DBA registration, publication, and other notification requirements may apply even if the state does not register sole proprietorships.

Potential Registration Exemptions

Even if a state does require registration of sole proprietorships, check before registering to determine whether your business actually needs to take that step. State laws vary; in today's increasingly web-based economy, simply offering goods and services online to customers in other states does not necessarily trigger registration requirements in those additional states.

In general, if your business has a physical presence in the state, if you frequently and regularly conduct face-to-face meetings in the state, if you have employees in the state, or if you have one or more business licenses in the state, you may need to register your sole proprietorship before conducting business in the state.

Tax Considerations

Unlike corporations which pay taxes on business earnings at the corporate level, sole proprietorships are "pass-through" or "disregarded" entities for tax purposes. This means that the sole proprietor is responsible for reporting income and expenses as an individual taxpayer. Expanding your business into another state or multiple states does not change the way your income is taxed.

However, if you are earning business income in additional states, you may need to file and pay state or local income taxes in the new states for the money the business earns in the new states. This means it is critical to keep good records documenting how much income is attributable to each state.

Some businesses also need to obtain sales and use tax permits before conducting business in new jurisdictions.

Not every state has a state income tax, and sales and use permits are not universally required. Talk to a tax professional to learn how operating your sole proprietorship in additional states may impact your tax obligations.

If you want to create a new sole proprietorship or register an existing sole proprietorship in additional states, you can work with an attorney licensed in the new state(s) or a reputable online legal services provider who can help you understand your requirements and the process.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.

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