When it comes to foreign registration, the term physical presence creates confusion because it means different things depending on which state agency is asking. Tax departments shifted to economic nexus after the 2018 Wayfair decision, allowing states to require tax collection based purely on sales revenue without any physical connection.
Secretary of State offices tell a different story — they still care deeply about physical presence when determining whether your business must register as a foreign entity.
State compliance involves multiple agencies applying different standards to determine your obligations. Understanding which agency uses which standard prevents conflicting assumptions about when registration becomes necessary.
Legal entity registration, annual reports, and registered agent
Tax nexus evolved significantly post-Wayfair, allowing purely economic connections to create tax obligations. A business selling $300,000 in products to State A customers from State B headquarters owes State A sales tax without any physical presence.
Foreign registration requirements remain rooted in physical presence concepts because Secretary of State offices concern themselves with entities conducting substantial operations within state borders, not just selling to state customers from elsewhere.
It’s also worth noting that a handful of states may treat sustained economic activity as transacting business, even without traditional physical assets.
Tax nexus and foreign registration requirements operate on separate tracks, creating four possible compliance scenarios rather than simple correlation.
You can have tax nexus without foreign registration requirements. Generating $250,000 in sales to state customers from your out-of-state headquarters creates economic sales tax nexus but may not constitute "transacting business" requiring foreign registration.
Pure sales activities — taking orders, processing payments, shipping products — conducted entirely from outside the state can trigger tax obligations while leaving business registration unnecessary. The distinction matters because tax compliance costs differ substantially from maintaining a registered foreign entity with annual reports and registered agent fees.
You may need foreign registration without tax nexus. Owning rental property in a state, maintaining a small branch office with minimal revenue, or holding inventory in third-party warehouses might require foreign registration without crossing economic tax nexus thresholds.
Physical presence for business operations triggers the Secretary of State requirements even when revenue remains below the tax department thresholds. A real estate holding company owning commercial property in a state must register as a foreign entity, despite generating no sales that would create sales tax nexus.
Physical presence for foreign registration centers on tangible assets and activities physically located within state boundaries. These elements create the type of substantial connection Secretary of State offices consider when defining "transacting business."
Offices and facilities you own or lease create perhaps the clearest physical presence. Corporate headquarters, branch offices, and regional locations establish obvious connections. Warehouses, distribution centers, manufacturing facilities, retail stores, showrooms, and service centers all represent physical space occupied for business purposes.
Even co-working space memberships, where you maintain regular presence, typically count as physical locations. Temporary offices during extended projects — typically six months or longer — generally create presence despite the impermanent arrangement.
Inventory and tangible property physically located in the state create presence even when stored by third parties. Goods warehoused for sale or distribution, equipment or machinery used for business operations, and vehicles registered in the state for business use all represent physical presence.
Human physical presence creates the most complex and frequently disputed foreign registration questions. Employee activities within states have evolved from simple office-based work to distributed remote work arrangements that challenge traditional presence concepts.
Employees working from state locations generally create physical presence, but details matter significantly. Full-time employees assigned to in-state offices create an unambiguous physical presence — someone representing your business occupies space within state boundaries, performing work on your behalf. Remote employees working from home in the state present more nuanced questions.
A single remote employee creates presence in many states' interpretations, particularly when performing substantive work continuously rather than occasionally. Multiple remote employees definitely create a presence in virtually all states. Whether workers are classified as contractors versus employees matters less than the economic reality — states examine actual working relationships rather than accepting labels designed to avoid registration requirements.
Activities that typically don't create presence involve temporary, isolated interactions rather than ongoing operations. The key distinction involves regularity and systematization rather than simple duration calculations. One employee working remotely continuously for three months creates more presence than executives visiting quarterly for week-long board meetings. States care about establishing ongoing operations within their borders, not penalizing temporary business travel.
Physical presence triggering foreign registration simultaneously creates obligations across multiple state agencies.
The same office, employees, or inventory establishing Secretary of State registration requirements likely triggers tax nexus for income tax, sales tax, and employment taxes; business licensing at state and local levels; and various regulatory compliance requirements specific to your industry.
Coordinating compliance across agencies prevents addressing foreign registration while ignoring related obligations:
These obligations arise simultaneously from the same physical presence, requiring a comprehensive compliance strategy rather than isolated agency-by-agency responses.
Discern simplifies foreign registration compliance by automating the entire process — from registration through maintaining ongoing compliance with annual reports and registered agent requirements.
Our platform handles foreign registrations across all 51 jurisdictions, automatically obtaining certificates of good standing from home states and coordinating all filing requirements.
Ready to eliminate foreign registration complexity? Book a demo with Discern today.
.png)
.png){kind=small}