Businesses move all the time. If a move is in the cards for your business, what should you do? Maybe you’re expanding and are out of capacity at your current location, or maybe a move is for personal reasons. Maybe you want relocate to a state that is more favorable to small businesses, such a state without any income taxes.
Moving a business raises many questions, particularly questions about legal and regulatory matters. In fact, some of the most common questions posted by small business owners to the SBA.gov Community are about the ramifications a relocation has on taxes, registration and incorporation.
If you’re thinking of moving or have already relocated your business, here are some answers to some of those questions:
Q: I operate an LLC. What steps do I have to take when I relocate?
A: It’s always best to consult an attorney if you are moving your LLC to a new state since there are several options open to you that require careful consideration. Here are your choices:
- Continue the LLC in your old state and register as a foreign (out of state) LLC in your new state. This will mean more paperwork (you’ll need to file duplicate annual reports) and tax filing. Reporting for multi-member LLCs can get more complex.
- Liquidate the old LLC and form an LLC in your new state.
- Register a new LLC in the new state and have each member transfer their membership interest (percent ownership) from the old LLC to the new LLC in the new state.
- Form a new LLC in your new state and merge the previous LLC into it. The IRS views this as a continuation of the old LLC and you can continue with your existing EIN. Assuming all LLC members still have a 50 percent interest in the capital and profits of the new LLC, there are no tax consequences either.
Q: What about Corporations?
A: Corporations (“C” or “S”) have similar options to LLCs:
- Continue the corporation in your old state and register as a foreign corporation in your new one.
- Dissolve the corporation in the old state and form a new one
- Reorganize (tax-free) and merge the old corporation into a corporation formed in the new state.
Talk to an attorney about tax ramifications, filing and ongoing reporting requirements, as well as the specific requirements in your old state regarding dissolving a corporation.
Q: What about sole proprietors or partnerships?
A: Moving a business out of state as a sole proprietor or partnership is pretty easy. You simply register your new business using the “Doing Business As” (DBA) registration process in your new state (usually at the county office) and discontinue your old one. This SBA guide has more information on the DBA registration process.
Q: I run an online business. What happens when I move?
A: Although your online business has no boundaries in terms of where you can do business, if you do move your business, you must comply with the laws that apply in your new state. So, even if your online business remains the same, you still need to legally move your business entity. Refer to the process described above for sole proprietors, partnerships, LLCs or corporations.
If you operate an e-commerce site, you’ll also need to apply for a sales tax permit in your new state. Read more about sales tax and selling to customers in different states in this earlier blog: Sales Tax 101 for Small Business Owners and Online Retailers.
Q: What about licenses and permits?
A: Moving a business involves almost the same legal and regulatory steps as starting a business, including obtaining the right business licenses and permits. Even if you intend to work from home, you’ll still need a home occupancy permit and a professional business license from your county. SBA’s Business Licenses and Permits search tool can help you find what’s needed in your new state. Be sure to check local zoning laws too.
Q: What impact does a business move have on my taxes?
A: Since you are moving out of state, you’ll need to close out your tax year in your old state (often as simple as checking the “Final Return” box on your state return). At the federal level, depending on your business structure, there may be several tax consequences to consider before and after you relocate. Every business is unique, so talk to a tax expert to get a quick grasp of your business tax responsibilities in the first year of your move.
Don't forget that you can deduct or capitalize the costs incurred during business relocation, including moving costs, relocation site scouting trips, travel and meeting costs. Get more guidance on small business expenses and tax deductions here.