How are corporate taxes handled for an Internet-based business if owners live in multiple states?


Two friends and I are creating an ecommerce site. I live in VA, while the other two are in NY. If we incorporate in VA and then register in NY as a foreign corporation, how are corporate taxes assessed? Will our profits be taxed by both states, or do we assign some percentage of the income to each state?

Incorporation Tax

asked Mar 2 '11 at 06:08
6 points

1 Answer


There are a couple of taxes you'll need to consider:

Corporate Taxes
You will be taxed on your corporate profits based on a formula of sales, payroll, and property located in the state. This is called "formulary apportionment" and each state uses a different formula.

Sales Taxes
You are taxes on sales tax online only in states in which you have a physical presence. Since you have a physical presence in NY and VA, you'll have to charge sales tax in those states. Note however that this law is relatively new and not all states have adopted this law so double check with NY and VA laws first.

Franchise Tax
You'll need to pay a minimum fee to VA for incorporating there, even if you make no money there and the same goes for NY. Also, NY has a NYC tax which you'll also have to pay a minimum so watch out for these taxes as well.

More info on my answer here:

Taxes for Android / iPhone developers?

answered Mar 3 '11 at 12:05
Alex Naegele Lawyer
653 points

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Incorporation Tax