There are good reasons to organize a business in Delaware, Nevada or Wyoming.
Delaware has a long history of established corporate law and is often preferred by investors. Wyoming has privacy and asset-protection advantages that can make it attractive to some business owners. Nevada has business-friendly laws and does not have an individual state income tax.
Depending on your business and what you are trying to accomplish, one of these states may make perfect sense.
Saving income taxes usually isn’t the reason.
That distinction gets lost in a lot of the tax advice being marketed to ecommerce sellers on TikTok and other social media.
If you live in Michigan, run your ecommerce business from Michigan and make the decisions for the company in Michigan, organizing your LLC in Wyoming doesn’t suddenly make your income Wyoming income.
You still operate a business in Michigan.
In many cases, you’ve just added another state to the equation. You may need to register the Wyoming LLC to do business in Michigan while continuing to maintain the entity in Wyoming. Now you have two registrations, additional annual filings, registered-agent fees and more administrative work.
And you may not have saved a dollar in income tax.
What About the States Where You Sell?
This is particularly important for ecommerce businesses.
The state where you organize your LLC and the states where you may have income or franchise tax filing requirements are two different things.
An ecommerce business can establish nexus in states other than its home state. Depending on the state’s rules, that can happen because of employees, inventory, physical operations or sufficient economic activity in the state.
So let’s say you live in Michigan and organize your ecommerce company in Wyoming. Your business could still have income or franchise tax filing requirements in Michigan and potentially in other states where it has established nexus.
Wyoming doesn’t make those obligations disappear.
And We’re Not Talking About Sales Tax
This is an important distinction.
The nexus we’re discussing in this article involves income and franchise taxes. Sales-tax nexus is a separate issue with its own rules and thresholds.
Ecommerce sellers obviously need to understand sales-tax nexus too. Marketplace facilitator laws have also changed the sales-tax picture significantly because platforms such as Amazon, Walmart and TikTok Shop may collect and remit sales tax on marketplace transactions.
But that doesn’t answer the income-tax question.
You can have a sales-tax obligation in a state, an income or franchise tax obligation, both, or neither. Each state has its own rules, and each type of tax needs to be looked at separately.
So Why Do Businesses Choose Delaware, Nevada or Wyoming?
Because sometimes there really is a good reason.
A company planning to bring in outside investors may have a legitimate reason to organize in Delaware. Another business owner may value provisions available under Wyoming’s LLC laws. There can be legal, governance, privacy and asset-protection considerations that have nothing to do with income taxes.
Those are conversations worth having with your attorney and CPA.
What concerns me is when the conversation starts with:
“I heard I should move my LLC to Wyoming because they don’t have an income tax.”
That’s starting at the wrong end of the decision.
Before changing where your ecommerce company is organized, ask a simple question:
What exactly are we trying to accomplish?
If there is a legal, ownership, investor or asset-protection reason, there may be a very good answer.
If the answer is simply that Wyoming or Nevada doesn’t have an income tax, you need to look deeper.
Where your LLC was organized does not determine, by itself, where your business owes income tax.
For an ecommerce business selling across the country, the real answer depends on where the owners are located, where the business is actually being operated, where employees and inventory are located, and where the company has established nexus.
The state on your articles of organization and the states where you owe tax are not the same question.