When a company does business in a state outside of where it was organized, it needs to foreign register with the Secretary of State.
Generally, states want companies to foreign register in order to put them on even footing with domestically registered businesses, as well as provide the public with access to basic information about the company.
The definition of doing business
But what does “doing business” mean? We'll attempt to sort through the different ways states determine that below.
As always, rely on your legal counsel as to whether or not you need to register your business in a state, but as a starting point - states often expect you to be registered if you:
Pay taxes in the state
Have employees or physical property in the state
Have a substantial amount of sales in the state or plan to sell to the state government
At least 8 states have laws that say exactly what it means to do business in the state. These rules focus on revenue, payroll, and property in the state, and are essentially legislated minimum threshold secretary of state nexus rules.
Revenue-based nexus rules
Some states have revenue-tested nexus rules ($X in the state over some period of time), many of which scale with inflation.
Washington State - $100k revenue or more through history
Texas - $500k revenue or more in a year (and in nexus questionnaire)
Connecticut - $500k revenue or more in a year
Colorado - $500k revenue or more in a year (or ≥25% of your revenue)
California - $735k revenue or more in a year (or ≥25% of your revenue) (scaled with inflation over time)
New York - $1.283M revenue or more in a year
Alabama - $635k of revenue or more in a year (or ≥25% of your revenue)
Payroll-based and property-based nexus rules
Some states have payroll-based and property-based nexus rules ($X of payroll in the state over some period of time):
California - $73.5k or more (or greater than 25% of) total payroll or property in a year
Colorado - $50k or more (or greater than 25% of) total payroll or property in a year
Ohio - $50k or more (or greater than 25% of) total payroll or property in a year
Alabama - $64k or more (or greater than 25% of) total payroll or property in a year
Washington - have an employee in the state
Regulatory requirements, in practice
For states where there aren’t clear guidelines as to whether you need to foreign register, we typically need to rely on case law and the specific facts of each business. States' views on foreign registration nexus vary widely.
That said, logically there are some activities that make it clear that companies are doing business in a state:
Paying taxes in the state
Having physical property in the state (including leases as part of the ordinary course of business)
Selling to the state government
Having a substantial amount of sales in the state (e.g. Texas)
Having employees in the state (e.g. Washington state)
It’s hard to argue that you’re not doing business in a state if you’re paying taxes there - likewise if you have physical property in the state, or sell to a state government.
Several states require a secretary of state registration in order to complete the application for payroll withholding or sales tax accounts:
Employment
Many states have low thresholds for annual payroll in the state necessitating foreign registration – above $50k per year for example. This leads to case law suggesting that it’s valuable to register in a state if you have full-time employees there.
Case law also tells us that states are likely to enforce qualification if your company has employees in particular who can bind the company to contracts, e.g. managers or senior employees.
Revenue
Similarly, the larger the amount of sales you have in a state, the more likely you are to be seen as doing business in the state.
The foreign registration process
Registering to do business in a new state typically requires submitting a state-specific foreign registration filing, as well as a certificate of good standing or similar from the state where the entity is domestically registered.
As part of the foreign registration process, each entity needs to appoint a Registered Agent, and then track secretary of state filing requirements.
Discern customers can foreign register in new states digitally in minutes from their Registration Status screen (with no need to get a certificate of good standing, as Discern does it automatically!).
Discern then automatically acts as Registered Agent, tracks secretary of state and franchise tax filing requirements, and automates filing.
What happens if you don’t foreign register?
Penalties for failing to foreign register your business are wide ranging by state, but generally fall into a few categories: criminal penalties and personal liability, loss of legal protections for entities within the state, and fees and interest charges. Read more about the potential consequences here.
Published on
2025-08-19
Updated on
2025-09-16
