State Taxes for Foreign-Owned LLCs: What Applies and What Doesn't
State income tax, franchise tax, annual fees and sales tax for non-resident LLC owners, and why your formation state is not the only state that matters.
Most of the attention on foreign-owned LLCs goes to federal taxes and Form 5472. But the USA has fifty states, each with its own tax rules, and your company can owe state fees and taxes even when it owes no federal tax at all.
This guide explains the three kinds of state obligations, when each applies, and how to avoid surprises.
The three kinds of state obligations
- Fees and franchise taxes to exist. Charged by your formation state, and by any state where you register, simply to keep the company in good standing.
- State income or business taxes. Usually apply only where the company has a meaningful connection, called nexus.
- Sales tax. Applies where you sell taxable goods or services and have nexus.
1. Formation-state fees and franchise taxes
Every state charges something, and these apply regardless of income:
| State | Typical ongoing cost for an LLC |
|---|---|
| Wyoming | Annual report, license tax from $60 |
| Delaware | $300 annual LLC tax |
| New Mexico | No annual report |
| Arizona | No annual report |
| Florida | Annual report, about $139 |
| Texas | Franchise tax report; no tax due below the revenue threshold |
| California | $800 minimum annual franchise tax plus a statement of information |
| Nevada | Annual list and state business licence, about $350 |
Missing these leads to late fees and, eventually, administrative dissolution. See annual requirements for a foreign-owned LLC.
2. State income and business taxes
States tax income connected to them. A state generally has the right to tax your company if it has nexus there, for example:
- an office or other place of business,
- employees or contractors working in the state,
- inventory stored in the state, including in third-party warehouses or fulfilment centres, or
- in some states, significant sales into the state (economic nexus for income tax).
If your company has nexus in a state other than where it was formed, it usually also needs to register there as a foreign entity and file that state's returns.
States without an income tax
Wyoming, Nevada, South Dakota, Texas (which has a franchise "margin" tax instead), Florida (no personal income tax, though it has a corporate income tax), Washington (which has a gross receipts tax), Alaska, Tennessee and New Hampshire (which do not tax wages) are often chosen partly for this reason. "No income tax" rarely means "no state tax at all", so look at the whole picture.
3. Sales tax
The USA has no national sales tax. Most states, and many cities and counties, impose their own. Since 2018, states can require remote sellers to collect sales tax once their sales into the state cross an economic threshold, often $100,000 a year, even without physical presence. Marketplaces such as Amazon and Etsy usually collect sales tax on sales through their platforms.
See US sales tax for online sellers abroad.
Online businesses run from abroad
For a typical foreign-owned LLC that sells services or digital products online, is run from outside the USA, and has no US staff, office or inventory:
- Formation-state fees always apply.
- State income taxes often do not apply, because there is no nexus.
- Sales tax may apply if you sell taxable products into states above their thresholds through your own website.
As soon as you add US employees, a US office or US inventory, review your state position. That is also the point where federal effectively-connected-income rules often start to apply; see effectively connected income explained.
Amazon FBA and warehouses
Storing inventory in a state can create nexus there for sales tax and sometimes income or franchise tax. Amazon distributes inventory across many states, which is why FBA sellers need to review their state position carefully. See Amazon FBA with a US LLC.
Common mistakes
- Believing that "no state income tax" in the formation state means no state obligations anywhere.
- Hiring a US employee in another state without registering there.
- Forgetting the formation state's annual report because there was no income.
- Ignoring sales tax on direct website sales.
How UCB helps
We track your formation state's annual report and fees, review whether your activity creates obligations in other states, and register your company in additional states when needed. Federal filings are covered by our US tax filing service.
Expanding into a new state, or not sure where your company owes tax? WhatsApp us at +91 8105 199 399 or email info@ucbsolutions.com and we will review your state position.
Let our experts handle it for you
Every business is different. Message us with your country, business type and goals, and we will recommend the right structure, state and package. We do the work; you focus on your business.
This article is general information for non-resident business owners and is not legal or tax advice. Rules and fees change; contact us to confirm what applies to your situation.
