You do not need to live an a state to incorporate a business there. Use your browser to find one of the hundreds of web sites that do cheap incorporations and call them on the phone. They can advise you about the cheapest state to incorporate in.
Andrew M. Jaffe
Attorney at Law
Practice Limited to E-Commerce and Internet Law
This post is provided for general informational purposes only and is not intended to be legal advice specific to you. This general information is not a substitute for the advice of an attorney in your jurisdiction. The attorney client relationship is not established by this post.
South Dakota does not require a business license but if you have sales, there is a sales tax and you will need to obtain a sales tax license, for free, and make monthly reports and deposits to the South Dakota Dept of Revenue. If you wish to organize your business as an S Corp in South Dakota you will need to file with the Secretary of State at a one-time cost of $150.00 (you can find the forms online.) You will also be required to file an annual report with a yearly fee of $50.00. Of course you will need to fill out the proper form with the IRS in order to be classified as an S Corp instead of the default classification of C Corp. A popular business form for a small business is an LLC (Limited Liability Company) because you do not have to have board members or annual board meetings as required with a corporation. With an LLC you can still file the proper form with the IRS in the limited time frame and be classified as an S Corp for tax purposes. If you do not understand these options, you may wish to consult with a business attorney who may help you with the forms you need.
I am not your attorney and as such I cannot give you legal advice. Also, I do not know all the particulars of your case so, "It depends." What I can do is give you information that is general knowledge or that you may be able to obtain through study & research of statutes, cases, or other legal references. If you do not understand the answer given, or if it does not apply to your particular case, please consult an attorney.