What Is "Doing Business"?

Definition
Doing business means having a presence in a state for the purpose of jurisdiction for legal matters and a nexus (connection) for tax purposes.
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Key Takeaways

  • The term “doing business” means having a nexus (a presence) in a state for tax and legal purposes.
  • To do business in a state you may have to register with the state or a locality or both.
  • The definition and requirements for doing business in a state is determined differently by each state. 
  • A company may “do business” in several states, registering separately in each according to state laws.

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.

Note

The concept of "doing business" is not the same as a fictitious name ("doing business as") registration with your county.

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

Note

Selling taxable products or services online may cause your business to have a tax nexus in a state. State internet sales tax laws vary, so check with your state’s taxing authority to see if you must collect, report, and pay sales taxes.  

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)

What does doing business as mean?

Doing business as or DBA means the assumed or fictitious name under which a business operates. The DBA basically means that the business operates under a name different from the legal name of the person or persons who own it or are responsible for it. Not all business types need a DBA, but if you are considering one, you need to register it with you local or state authorities.

What constitutes doing business in California?

An entity is considered doing business in the state of California if it meets a few criteria. First, the entity is engaged in making financial profits in California. Second, the entity is registered and domiciled in the state. And thirdly, if the entity's 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.





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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Michigan.gov. "Corporate Income Tax."

  2. New Jersey Division of Taxation. "Nexus for Sales and Use Tax."

  3. State of California Franchise Tax Board. "Doing business in California."

  4. Iowa Secretary of State. "What Is the Difference Between a 'Foreign' and 'Domestic' Corporation/LLC/Nonprofit?"

  5. New York Department of State. "Application of Authority."

  6. Florida Department of State, Division of Corporations. "Certification."

  7. Cornell Law School Legal Information Institute. "Doing Business As (DBA)."

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