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Do NV corps need a license to run a drop shipping business from CA if there is no inventory and all sales are online only?

Visalia, CA |

I want to incorporate an online only retail store in Nevada and run it from my home in California. I will will be using a drop shipping solution so I will not have any physical inventory. Is it possible to do this without registering in California or obtaining local licenses since I will not be taking any physical transactions from home? Would opening a business bank account in Nevada
help? I want to save myself money but I also want to stay on the right side of the law.

Attorney Answers 4

  1. Best answer

    Although I am not an expert in this area, my gut instinct is that there will be a sufficient nexus between you and the State of California as regards your online business that you will be required to register your Nevada corporation as a foreign corporation with the California Secretary of State. As to the nexus requirement, since the business will be operated from your home in California, that indicates that the corporation has facilities (an office) in this State. In addition, based upon your physical presence in the State of California, you will be required to pay sales tax on your sales to Californians.

    The answer to this question does not establish an attorney-client relationship. Moreover, this attorney is licensed to practiced law ONLY in the State of California. Answers to questions from users in other jurisdictions or states are meant to provide only general information. Users should contact a local attorney in their jurisdiction or state to address their specific tax issue.

  2. You will need to check with the city (or possibly county) in which you live to determine whether your home-based business (a) is allowed and (b) requires a business license.

    As concerns whether your NV corporation must qualify (register) in Ca, the test is whether it will be “entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce”. (Please see the post at the link below.)

    This information does not constitute legal advice and does not establish an attorney-client relationship.

  3. Note that if you incorporate and your business pays rent for an office in California, then you will need to register the NV corporation in CA. The payment of rent would constitute the necessary "intrastate business."

  4. The Los Angeles City Business Tax, though it may not apply to you, is an example of how broad a city business tax might be, as a result of which I doubt you can avoid obtaining a local license. Article 1, Chapter II, Section 21.00, provides the definitions. Subsection (i) defines "Engaged in Business" to mean: "conducting, operating, managing or carrying on of a business, whether done as owner, or by means of an officer, agent, manager, or employee. A person shall be deemed engaged in business within the City if:

    (1) such person or his employee maintains a fixed place of business within the City for the benefit or partial benefit of such person, or

    (2) such person or his employee owns or leases real property within the City for business purposes, or

    (3) such person or his employee regularly maintains a stock of tangible personal property in the City for sale in the ordinary course of business, or

    (4) such person or his employee regularly conducts solicitation of business within the City, or

    (5) such person or his employee performs work or renders services in the City on a regular and continuous basis involving not less than seven working days per year for all such employees, or

    (6) such person or his employee utilizes the streets within the City in connection with the operation of motor vehicles for business purposes.

    The foregoing specified activities shall not be a limitation on the meaning of engaged in business. (Amended by Ord. No. 174, 272, Eff. 11/26/01.)"

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