Do I need to register my LLC in another state, and what the second state charges when you do not

Do I need to register my LLC in another state. For 2 years I answered that question with a sentence I now think is close to useless, and I repeated it often enough that it is probably still being quoted back to somebody by a founder who heard it from me: you register where you form the company, and if you later open an office somewhere else you register there too. It sounds tidy. It quietly implies that having no office means having nothing to do, and that is the part that costs people money.

I had assumed the paperwork came first and the tax followed it. I had it the wrong way round, and I gave that bad advice in writing more than once. Registration is the paperwork, and the paperwork follows a question that gets decided without you: whether the second state considers you to be doing business inside it. That question has published thresholds. You can measure yourself against them in about 10 minutes, and I would do that before paying anybody for an opinion. The bank account usually follows the filing, and Bank Index lists the US banks with the supervisor named on each card.

California is the example throughout, because it publishes its numbers plainly and because it catches more remote companies than anywhere else. The shape of the rule repeats in other states with different figures attached.

What doing business actually means

California does not ask where you filed. It asks what you did. The franchise tax board sets out thresholds for sales, property and payroll inside the state, and crossing any one of them puts you in scope. For 2025 the sales line is 757,070 dollars, or 25 per cent of your total sales if that is smaller. Property and payroll each have their own line at 75,707 dollars, again with the 25 per cent alternative.

Those numbers move every year with inflation. The 2024 figures were 735,019 and 73,502, which tells you something useful about the mechanism: this is an indexed test, not a policy that gets revisited. Nobody at the franchise tax board will write to tell you that you crossed the 75,707.

The payroll line is the one that catches remote companies. One senior engineer living in California, paid 80,000 dollars a year by a Delaware company with no California anything else, is over the threshold. The company never opened an office. It never sold to a Californian. It hired somebody who lives there, and that was enough.

The bill that arrives whether or not you registered

One sentence reorders the whole question, and the state writes it plainly: “Every LLC that is doing business or organized in California must pay an annual tax of $800.” Doing business or organized, and the first half of that has nothing to do with your filing cabinet, and the tax is flat, so it does not care that you lost money this year.

Above 250,000 dollars of California income there is a second charge on top, and it is a staircase rather than a percentage. The published tiers run 900 dollars from 250,000, then 2,500 dollars from 500,000, then 6,000 dollars from a million, and 11,790 dollars at 5 million and above. A company sitting at 249,000 dollars pays 800. A company at 251,000 pays 1,700.

There was a first year exemption from the 800 for companies that registered in 2021, 2022 and 2023. That exemption has now expired. I mention it because half the advice online still describes it as current, and that is the kind of stale fact that reads as reassurance. It annoys me more than it should, because the 800 dollars is the first number anybody searches for.

What the unregistered version costs

This is where my old answer did real damage, because it implied that skipping registration saves the fees. It does not save the 800 dollars, and it adds a penalty of its own. The state penalty chart carries an entry under section 19135 aimed at “any foreign corporation which fails to qualify to do business … and is doing business in this state … and fails to make and file a return within 60 days of FTB's notice and demand.” The amount is 2,000 dollars per taxable year.

Read the trigger carefully, because it is a 2 step trigger. The penalty attaches after the notice, not on the day you crossed the threshold. So the sequence that hurts is silence followed by a letter, and the years stack while the silence lasts. Reasonable cause and not wilful neglect is listed as a defence, which tells you the state expects arguments here.

There is a smaller one alongside it. Section 19141 carries a 250 dollar penalty on certification by the secretary of state for failing to file a statement of information. That is the routine filing everybody forgets, and 250 dollars is cheap enough that companies pay it and never ask why the letter arrived.

The statement of information is the other thing worth putting in a calendar. It is a short filing, it repeats every 2 years for an LLC, and the penalty for missing it is set out in the same chart: “$250 upon certification by the Secretary of State.” Nobody argues about 250 dollars, which is exactly why it keeps happening.

The protection that does not protect you here

Somebody always raises Public Law 86-272 at this point, and it is worth knowing what it covers before you lean on it. The state describes it as applying to companies outside California “whose only in-state activity is the solicitation of sale of tangible personal property to California customers”, and says those businesses “are exempt from state taxes that are based on your net income.” Tangible personal property is the operative phrase, and software sold as a subscription is not that, and the exemption is about net income taxes rather than the flat 800 dollar annual tax.

So a hardware company with a travelling sales rep might sit inside it. A software company with one engineer in Sacramento does not, on either half of the test. I would not build a plan on this protection without somebody signing off in writing, and I have not found a version of it that covers the annual tax.

Why the answer moved without anybody telling you

I went back through my own notes from 2 years ago to see where the wrong version came from, and it came from a period when the question really was simpler. A company had an office or it did not. Payroll sat where the office sat. The test and the intuition agreed with each other, so nobody had to read the test.

Remote hiring broke the agreement without changing a single rule. The thresholds did not move in any interesting way, the arithmetic is the same arithmetic, and the intuition simply stopped matching it. That is the uncomfortable class of problem, because there is no announcement and no letter. The rule sat still while the companies moved.

I suspect this is why the advice online is so bad on the 2 questions people actually ask, and most of it was written when the intuition worked, then copied forward with the thresholds updated and the reasoning untouched. My guess is that the numbers in an article are the last thing anybody refreshes and the logic is the first thing that goes stale.

What it costs to be right about it

Registering as a foreign LLC in California is not the expensive part, and I want to be precise about the order of magnitude. The filing with the secretary of state is tens of dollars and the statement of information is 20 dollars every 2 years. Against that sits the 800 dollar annual tax, which you owe either way, and the 2,000 dollar penalty, which you owe only if you stay quiet after a notice.

So the honest arithmetic of doing nothing is this. You save yourself the trouble of one form. You keep the same 800 dollar bill. You add a 2,000 dollar exposure per year and interest on the unpaid tax, and you take on the risk that the company cannot bring a lawsuit in the state until it registers, which is the part that tends to surface at the worst possible moment.

I have not found a published figure for how often the courtroom consequence actually bites in a year, and I would not lean on it in an argument. It is the one people mention and the one nobody quantifies.

How I would work through it now

I start with people rather than revenue, because payroll is the threshold that moves first, it is the one founders forget they control, and it is the only one of the three that can be crossed by a single hire made in a hurry on a Friday afternoon. List everyone who works for the company and the state they sleep in. That list answers most of the question in 5 minutes.

Property is the second question to ask. For a remote company that usually means inventory sitting in somebody else's warehouse, and stock in a fulfilment centre is property in that state for as long as it sits there, whoever packed it and whoever ships it. Sales come last, which surprises people, because it is the number everybody starts with and the one that matters least at small scale.

If any line is crossed, registration is the cheap part of what follows: the filing to qualify costs tens of dollars, takes a form, and can be done in an afternoon by whoever already handles the company's paperwork. The expensive part is the arithmetic that follows it, and the expensive mistake is doing the arithmetic 3 years late with a notice on the desk.

An aside that has nothing to do with California. The same shape appears in most states with an income tax, the numbers differ enough that memorising them is pointless, and what transfers is only the order of the questions: people, property, sales, then paperwork. Right, back to the money.

One more piece of arithmetic before the caveats. A company with a single California engineer on 80,000 dollars pays the 800 dollar tax, files 2 short forms, and is done. The same company staying quiet for 3 years owes 2,400 dollars in tax, up to 6,000 in penalties under section 19135 and interest on top, and it collects all of that in one letter rather than 3.

What I could not establish

Two questions beat me here. How aggressively the 2,000 dollar penalty is actually applied to small remote companies is the first, and the chart is silent on it in the way charts usually are, since publishing an enforcement rate would tell everybody exactly how long the silence is worth. The chart states the amount and the trigger, and I could not find published counts of assessments by company size. Everything anybody tells you about the odds on the 2,000 dollars, including me, is an impression rather than a number.

Whether a single remote employee reliably triggers the notice in practice. The threshold arithmetic is clear on paper, and the enforcement path from a payroll filing to a franchise tax notice is not something I have seen described anywhere official. I asked 2 accountants and got 2 different confidence levels. Neither had a dataset.

I am not sure how a company is supposed to notice the day it crosses the 75,707 dollar payroll line, and no rule I read describes a notification. I still find it hard to read that as anything other than deliberate. The part I keep coming back to is the 800 dollars. It is charged for doing business, not for being registered, so the company that ignores the whole subject owes exactly the same tax as the company that files properly, plus a penalty and interest. There is no version of this where staying quiet is cheaper. I am still slightly surprised by how many people are advised otherwise.