Forming your C corporation in Delaware gives you a lot of flexibility, but you may still need to follow local laws depending on what state you operate in.
Specifically, if you do business in New York, you need to register with the state. We’ll walk through the process and simplify it. But first, how can you tell whether your company is doing business in NY?
When to register as doing business in NY
Delaware C corps—and all other corporations formed outside of NY—are referred to as “foreign” corporations by the State.
According to Section 1301 of the New York Business Corporation Law:
A foreign corporation shall not do business in this state until it has been authorized to do so as provided in this article. A foreign corporation may be authorized to do in this state any business which may be done lawfully in this state by a domestic corporation, to the extent that it is authorized to do such business in the jurisdiction of its incorporation, but no other business.
The statute doesn’t clearly state what counts as doing business in New York; that’s determined based on past cases. However, the New York Business Corporation Law says you are not doing business in New York if you are doing the following in the state:
- Maintaining or defending an action or proceedings
- Holding board of directors or shareholder meetings
- Maintaining bank accounts
- Maintaining offices or agencies exclusively for the purpose of transferring, exchanging, or registering securities
That’s only helpful up to a point. More specifically, ask yourself the following five questions; if you answer “yes” to any of them, and none of the terms above apply, you’re operating as a business in New York:
- Are you planning to hire and retain any W-2 employees in NY?
- Will your corporation hold any special licensing in NY?
- Will your corporation hold any real property, eg. rental property, real estate, commercial property in NY?
- Is your corporation going to have a brick-and-mortar location in NY?
- Is your corporation going to ship any products from NY?
Arina Shulga, a corporate and securities law attorney in New York City, offers an in-depth rundown to help you determine whether you’re legally doing business in NY.
Even if you don’t qualify as doing business in NY, you may need to register to collect sales tax—so long as you fall within the State’s sales tax nexus.
To be clear: You may not be a registered business in NY, but at the same time you may be doing enough business in NY that you’re required to collect sales tax. The two qualifications are entirely independent of one another.
When to register to collect sales tax in NY?
Every state has a sales tax nexus. You can think of the nexus as a special version of that state’s border; if you perform certain business activities within that border, you fall into the state’s sales tax nexus, and you’re required to register for and collect state sales tax.
Typically, these actions take the form of buying and selling goods and services.
Until 2018, selling or buying non-physical goods—like subscriptions to streaming services, SaaS memberships, etc.—did not, generally speaking, qualify you for sales tax nexus. After an important court ruling in 2018, that changed. Now, if you buy or sell non-physical goods or services in a state, you may fall within its sales tax nexus.
NY State sales tax nexus (physical goods and property)
When it comes to physical items, you fall within NY’s sales tax nexus if:
- You have an office or any other place of business in NY
- You have an employee in NY for more than two days each year
- You have a sales representative, contractor, or any other representative present within the state’s boundaries
- You deliver goods within the state
- You use vehicles owned by a NY taxpayer
- You own any real or personal property within the state
- You store or warehouse goods in NY
Jesse McClellan of McClellan Davis, LLC offers an extensive rundown of physical sales tax nexus rules, including past rulings.
Remember, many businesses that don’t meet these qualifications fall within the sales tax nexus for non-physical goods and property.
NY State sales tax nexus (non-physical goods and property)
The new state sales tax laws applying to non-physical (ie. internet) sales allow you to qualify for sales tax nexus even without physical presence or goods. In NY, you need to cross a certain threshold to qualify.
NY sales tax nexus threshold: $300,000 per year in gross revenue AND sales in New York consisting of more than 100 separate transactions in the past four quarters.
If you want to take a deep dive, you can check out the official notice from the State.
In addition, NY’s State statutes declare that a seller who enters into a commission agreement with a NY resident, where the resident either directly or indirectly refers potential customers to you, and those referrals result in gross receipts of more than $10,000, has sales tax nexus.
As usual, this isn’t legal advice—just a guide. If you’re not 100% clear on whether you fall within NY’s sales tax nexus, it’s best to confer with your legal counsel and/or an accountant that has expertise in the NY legal code and tax regulations.
How to register to do business in NY
To become a “qualified foreign business” in NY, you’ll need to do the following:
- Select a name under which to do business. This doesn’t have to be the name you registered when incorporating in Delaware, but it can be. Section 301 of the New York Corporation Business Law lays out guidelines for selecting a legal name.
- Fill out an application. You’ll need to fill out an Application for Authority, and include a Delaware Certificate of Good Standing.
- Pay the fee. Now you pay the Division of Corporations a $225 filing fee.
- Include your NY State Tax Commission Consent. You only need to do this if you are currently or have previously done business in NY. This consent verifies that you’re up to date on your state taxes. To request it, call the New York State Tax Department Call Center at (518) 485-2639. Include this consent when you submit your Application for Authority.
- Submit your Application for Authority.
- Wait. Processing typically takes two to four weeks.
Once you’re approved to operate as a qualified foreign business in NY, you’ll need to comply with certain requirements.
Compliance as a qualified foreign business in NY
To stay in compliance and continue legally doing business in NY, you need to meet two requirements: Maintaining a registered agent, and filing biennial reports. On top of that, you must pay the NY franchise tax.
Registered agent in NY
Your registered agent in NY is your point of contact with local authorities. If you don’t have a a physical address for your company in NY, it may be advantageous to find a registered agent to receive state notices on your behalf.
Unlike many states, foreign corporations are not required to have a registered office in New York. Each qualifying foreign corporation can opt to designate the NY secretary of state as its agent for service of process
Your registered agent will forward any important information, such as business mail, to you. There are a number of firms that contract out registered agents. They typically cost $50 – $100 per year.
Biennial reporting in NY
Every two years, you must file a statement with the State, updating any changes in address or personnel. You’ll include info like:
The legal name of your business
The name and address of your registered agent
The names and addresses of board members, managers, and officers
This report costs $9 to file on the NY Department of State website. It’s due the same month you filed your Application of Authority. So, if you filed your Application of Authority on January 3, 2021, the latest you can file your biennial statement is January 31st, 2023.
Paying the NY franchise tax
Finally, you are expected to pay NY franchise tax. If you owe more than $1,000 in NY franchise tax after applying tax credits, you must register to make quarterly estimated payments.
This is best handled by your accountant. But for an explanation of quarterly payments, plus NY franchise tax rates, see the NY State Department of Taxation and Finance.
How to register to collect sales tax in NY
If you fall within NY’s sales tax nexus, you’ll need to apply for a Sales Tax Certificate of Authority. Here’s how:
- Go through this application checklist and make sure you have everything you need to apply.
- Fill out the Business Contact and Responsible Person Questionnaire.
- Register for a NY.gov business account
- Apply online
Hiring and paying employees in NY
To hire employees in NY, you must register for workers’ compensation and state disability insurance (SDI), and withhold state taxes and insurance contributions from employees’ pay. You’re also required to report all new hires to the State.
Your payroll provider should be able to take care of paycheck withholdings, but it’s up to you to register as an employer with the State and set up an online employer account.
For a complete guide to your responsibilities, see Form NYS-50 (Employer’s Guide to Unemployment Insurance, Wage Reporting, and Withholding Tax.)
Some other resources for hiring in NY:
The easiest way to register your business in NY
To register your business in NY, you’ve got to keep track of a lot of moving parts. Failing to file the right forms, provide the right information, or stay on top of compliance laws can lead to serious headaches.
Capbase makes it easy. When you incorporate your Delaware corporation on Capbase, we will generate the required information needed to register to do business in New York and keep you up to date on any required filings.
The compliance calendar inside your Capbase account will notify you of upcoming fees, reporting, or other requirements, so you can keep your startup in good standing with NY state officials. Try Capbase now.