taxes, incorporation, californiaWe are a company based in India and are opening a US subsidiary. Our goods are digital - training videos which our customers can watch on our website. We expect the US subsidiary to receive payments from around the world. The rough revenue split would be 50:50 for US:Non-US. We will receive payments via Paypal which integrates into our bank account.
Here is our understanding:
If we incorporate in Wyoming, for all non-US income received, there will be no state income tax. Am I correct?
We will have customers from almost all states in the US. Assuming we do not have any physical premise in those states, my understanding is we might still need to pay sales tax if the state requires so for pure digital goods delivered over the Internet. There is no state income tax on the payments received from their residents.
If we open an office e.g. in California and hire employees, then we will need to pay income tax on all revenue earned from doing business in California. As a purely online business, my understanding is that this would be any income received from customers based in California, not from other states or internationally.
I cannot answer for WYOMING sales tax.
You should be subject to Wyoming state tax for customers in Wymoming, but you need to check Wyoming’s sales tax law. (Virginia, where we are located, requires we collect sales tax for sales of physical goods (but not digital such as you describe) within the state) Yes, although I am Not a Lawyer.
That is my experience with our company over the last 20 years (we sell software on CD and pay sales tax only to California* and to Virginia (b/c we are based in Virginia). We pay no other state sales taxes (so far!)
One Caveat with *California: They found a clever way to make us register to collect CA sales tax even though we have no physical presence in CA. We sell software (digital and CD) to CA colleges and they required we be signed up as a vendor. THAT, then, required that we agree to collect CA sales tax from everyone but colleges. If you run into this, I’d form a subsidiary for selling to the State (and feel free to mark up your prices ;-). Then ONLY the subsidiary sells to the State.
Be careful about how you do this. Some states (I don’t know if California is one of them) require that if you have a physical presence in the state (i.e., an office or store location) then you must register as a foreign corporation (not as in non-U.S., simply a business entity formed outside the state), and that could have tax implications.
I’m not a tax specialist, but you’d be wise to spend some time (and, if necessary, a few dollars) talking to someone specifically in California about this, since they’ll be intimately familiar with their state’s laws.
Don’t go cheap in getting good advice or trying to bootstrap your way into things! If you aren’t careful from the very start then it could have very negative consequences down the road. There’s certainly nothing wrong with posting questions on sites like this to get you headed in the right direction, but there’s no substitute for sound professional advice that is specific to your circumstances.
Don’t underestimate just how serious tax problems can wind up being! There have been many small businesses shipwrecked by this simply because the owners were trying to do things the easy way in the expectation of fixing them later once their business was running more smoothly. Be careful, do it right, and research everything thoroughly.
Hope this helps.
Good luck!
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