What Is "Doing Business"?

Why Is “Doing Business” Important?

The concept of "doing business" refers primarily to states, since all businesses except sole proprietorships are organized under the laws of a state. An enterprise "does business" in a state or locality for the following purposes:  

Jurisdiction in legal matters

Jurisdiction determines what court hears a case. For example, if your business is a limited liability company (LLC) that is organized in a state and is involved in a lawsuit as a result of doing business in that state, the lawsuit may be considered to be under the jurisdiction of that state's court system.

Assessment of taxes

These taxes include income taxes, sales taxes, and other taxes on business entities with a  tax nexus (presence) in that state. The concept of tax nexus is more specific than the general concept of "doing business.”

Tax Assessment By Business Type: Sole proprietorships are not required to register with a state for legal purposes. But it is still considered to be doing business in the state for tax purposes if the business meets state requirements. In Michigan, for example, all businesses, including sole proprietorships, with a tax nexus and gross receipts of $350,000 or more and tax liability over $100 must file a tax return.

Tax Nexus: A tax nexus is a connection of a business with a state for tax purposes, and each state has different regulations for establishing a tax nexus. Generally, you may have a tax nexus in a state if:

• You sell in the state through a distributor, an agent, or a manufacturer's representative
• You have an office, manufacturing or distribution facility, or retail store in the state
• You own real property (land and buildings) or personal property (other types of business property) in the state
• You transact business or hold meetings in the state.

Tax Assessment By Business Size: Some states say that a business is “doing business” in their state for tax purposes only if the activities of the business are over a certain amount. California, for example, considers a company to be doing business if their in-state sales, value of real and tangible personal property, or their payroll compensation for the year is 25% of total for that category or if their in-state sales taxes is over $637,252 their business property is greater than $63,726 or their payroll compensation is over 63,726.

How “Doing Business” Works  

You can do business in several states, if you register your business with the state and your business engages in certain activities. A common list of criteria varies by states, but it generally includes any of the following activities

• Having a physical presence in the state (a store or office, for example)
• Having employees in the state
• Accepting orders orders in the state, or being required to collect sales tax

Your business must  register with the state and county where you want to carry on business activities. The type of registration you need depends on your circumstances. For example, a family business selling at a flea market might need only a business license in the county where they are operating, while a company that makes billboards in the state might need to register with the state. 

If your business needs to register with multiple states, the first registration, in your home state, is a domestic registration, and additional registrations are a foreign registration.

For example, if the primary business location for your LLCis in Illinois, you would first  register as a domestic LLC  in Illinois, and if you also have a business presence in Iowa, you would need to register as a foreign LLC in Iowa.

Application of Authority

In some states,  a corporation wishing to do business in the state must file an application for authority (New York) or a certification of status(Florida)” which serves two purposes:

• The business acknowledges that it considers itself to be doing business in that state  
• The filing information provides for a way to facilitate the serving of process, by listing the registered agent or another person 

Frequently Asked Questions (FAQs)