I tell anyone who will listen: stay as far away from NYC and NYS as you can when you're operating a business. The bureaucracy is insanely complex and both governments harbor a very strong anti-business sentiment.
NYS charged my previous, 2-person, zero employee agency a $14K fee for not having a Workers Comp policy, even though having one isn't necessary for member-managed businesses. We sent in paperwork demonstrating our case and they didn't care. They kept asking for more proof that we didn't have employees—even though they had no evidence that we did have them. A bit hard to prove a negative!
After several years of back and forth, we finally just said forget it, closed that entity, and started ignoring the monthly shakedown notices. Now I'm wary of even having clients in NYS.
[Edit: I've heard CA is similar, but don't have personal experience there.]
[Edit: I've heard CA is similar, but don't have personal experience there.]
Have personal experience with CA. It's not at all the same. NYC is a nightmare to work with, but CA agencies are quite easy to work with. The only other jurisdiction as bad as NYC is the state of Hawaii.
Other than during the tax filing season I can reach a live human at a CA agency (except the DMV) within a few minutes just by calling. Representatives are very helpful over the phone, and I've resolved many issues for clients and my employer (now that I'm in-house) just by calling.
CA's bureaucracy looks complex, but it's actually very easy to navigate, and if you need help, there are a great many government employees who would be happy to help.
I've heard a lot of similar stories about NYC (less for NYS) and I am always wondering what the end game is for these guys. Do you feel like someone was trying to get you to bribe them or something? Absent that, I have a hard time understanding why they would be so persistent in going after you in such a chickenshit fashion.
I heard some years ago from someone who used to work there that Cisco simply refused to bother doing business with New York State - simply would refuse to bid - because they found the entire process to be literally not worth the business.
(no other verification, no info on the current status)
Unfortunately, a lot of first-time entrepreneurs don't know these things and register wherever they live. And even if you register in another state, you still have to abide by NYS/NYC rules if you operate in those regions.
Similarly, there’s often little to no benefit to incorporate in Delaware for small businesses, but too many assume it’s a good idea. In fact, for most small businesses, you’re worse off.
Why was this downvoted by people. Seriousquestion raises a good point. $800 a year is a massive cost. Lets say the llc is a cleaning service, and they are only pulling in $20k a year anyways. Operating as an LLC is 1/20th of their income to do it legally. This is a valid point, and is on topic.
It isn't an $800 charge, it is a minimum of $800 in state tax. For an actual business with $20k in revenue the cost is much lower than $800, maybe zero
Incorrect. I own a single member LLC in CA and very simply must pay an $800 charge to operate. This is a charge completely separate from taxes owed.
I know because for a couple years I didn’t owe any state business taxes and thought I didn’t have to pay the $800. I was wrong and had to back pay those charges plus interest. It sucked.
The fee isn't that much for California. I could see it as expensive if it was in a cheaper state. Also, if somebody is only making $20K annually running a cleaning service in California, they need to run it as a sole proprietorship, find another line of work, or move to a different state.
I made $15K in the late 1980s in California while living paycheck to paycheck. I don't see how anybody can live on $20K in 2021. This hypothetical person would make more money working at McDonald's.
The California state minimum wage is $13 for employers with 25 or less employees, $14 for employers with more than 25. A person would make more money working full time at a fast food establishment than running a cleaning service if their are making only $20K annually. You would have to go back several years when the minimum wage was less than $10.
I ran a consulting business for years as a sole proprietor. It is a viable operating entity, especially for one person. I also had a business liability policy, which you will also want as a single member LLC. It is actual quite easy to pierce the liability protection that an LLC offers, especially for single member companies because many people intermingle assets and debts, such as when personally guaranteeing a loan. If you injure somebody while on the job or engage in professional malpractice, the LLC shield won't protect you. And finally, fraud; if you are using the LLC as a buffer to commit illegal acts, a court will find the company is nothing more than your alter ego and hold you personally responsible.
If you are a software developer, run your business as a sole proprietor until you are ready to sell your product or hire employees, then convert the business to an LLC. You will still get the first year waiver.
Isn’t the main reason people like Delaware because the corporate law is very well understood? There’s case law going back hundreds of years. What does Wyoming offer that trumps that?
All limited liability entities doing business in California must pay the franchise tax. Also, the first year waiver is only for domestic companies, those organized in California.
For a California resident trying to escape the expense, you are going to spend more money by creating your LLC in another state.
The argument I hear from folks in CA is that people who own LLCs are already rich and they can afford $800. This is exactly the attitude that makes people move out of CA. It is ridiculous taxation and government fees for pushing papers. It would be far better to let people start companies for free and then pay whatever fees after generating $1M revenue. You know, after they're "Rich". SMH.
It also entrenches inequality. Design a system that assumes everyone is rich, poor people can never rise.
As someone not from the US, this aspect of the US has always amazed me. There is huge regulation on business at the state-level, particularly SMEs, but the US has a functioning economy somehow...do the rich just incorporate in Delaware? It is amazing to think that the US has succeeded in spite of significant efforts to fail. Introducing flat fees on business creation is tying a noose round your own neck economically.
You cannot look at this myopically - there are many areas of CA's policies, especially in the 1970's through 90's where the "Silicon Valley" name originates from. There is a lot of inertia from policies - like stopping a massive locomotive - and just because the policies are less steamy, it still takes a lot to stop the train. Labor pool has a magnetic catch-22 effect.
I've incorporated 2 LLCs in the past (not in CA) and it was literally a 10 minute job. Costs $50 one time fee. No recurring fees at all. Mostly online, albeit have to print out a form and mail it to the Dept of Revenue, but don't need to queue up anywhere. Opening a bank account is straight forward and takes 1 day.
There is also a lot of variation from state to state - ironically, the red states have better policies for inequality for businesses. Low regulation in this area helps the "small guy/gal" get their feet wet without much hurdles. I strongly believe in regulation based on thresholds of how large/monopolistic/oligarchic companies get. Regulations should be designed in a way that promotes methodical canopy growth but not completely cover the seedlings that are hatching on the ground.
It's frustrating seeing the rhetorical tricks people pull - "these regulations exist only hurt/harm the rich!" - when common observation shows that no, they just prevent people from becoming rich. The poor have nothing, the rich have more layers than God, so the middle class gets the shakedown.
The $800 fee is a minimum tax for the year, not an arbitrary fee, it is credited against other taxes you owe. To that end, most businesses with employees or substantial sales won't owe anything extra. It is waived the first year in most cases, so it isn't a short term problem for new businesses. There are other business structures for a company besides an LLC if costs like the registered agent, the tax complexity, the minimum franchise tax are an obstacle.
So even if you have no income or a loss, you still have to pay $800 tax. That seems ridiculous. Many have said that the term "tax" is inappropriate and instead should be a fee (which can be tax deductable), but wait! There's more. There is also a LLC fee which is waived for <$250k revenue but increases there after. Note - all this taxation and fees is in addition to state income taxes. Experts also say that the "LLC Fee" should be called "LLC Tax". California has an absurd level of taxation for someone who wants to open "Hannah's Illustration & Painting LLC".
Given how it works in states like Nevada and Arizona ($50 flat one time fee, no minimum LLC tax or fees), California goes on a limb to intentionally make sure your little LLC suffers as much as possible: http://www.incorporatecalifornia.com/callctax.html
This minimum tax is not a separate fee owed on top of the corporate tax. For example California requires S corporations or LLCs electing to be taxed as an S corp to pay a 1.5% franchise tax on income, with a minimum tax of $800
This franchise tax is required by any type of business entity offering limited liability. Besides a limited liability company, this includes corporations, limited partnerships, and limited liability partnerships. You can avoid this fee if you have a sole proprietorship or general partnership. Additionally, non-profit corporations that have a tax-exemption from the IRS are also exempt from this fee.
Boston is not much better. I have been trying to get hold of someone to move a bureaucratic process forwards, that only this department can do, for 8 weeks now. Letters, emails, voicemails, nothing can get someone to reply or call me back. Absurd.
My least favorite Mass. business experience this year was the complete fuckup with the Dept of Unemployment Assistance solvency fund. My DUA tax rate went from 2.5% to 7.5%. Frigging legislature and state government had no clue that this was coming, and left small businesses like mine swinging in the wind.
Mine is city, section 8 housing. Trying to do a paperwork thing for my tenant and we did everything required on the deadlines but no one has ever contacted us and the new website they created is stuck on “Step 3” of 6 of the process. Not really sure what will happen when the deadline passes, hopefully they will be ok. Just nutty.
You didn't at the time. The reason we got flagged was because we started talking to insurers about adding a policy at one point in anticipation of hiring.
Complex bureaucracy is not because of anti-business sentiment, it is a business model.
This system is kept because it probably sustains a whole economy of intermediaries (either doing legal, grey-area or illegal/bribery work) and the key public machine figures responsible to make it leaner get some benefit out of it.
CA makes mistakes, but not generally very long-term. They’re also quite responsive - I’ve never had a situation in which they didn’t respond, except for the FTB which can take a few weeks or months depending on time of season (similar to the IRS). Every other agency is, well, still a government agency… but tends to be responsive at least.
NYS charged my previous, 2-person, zero employee agency a $14K fee for not having a Workers Comp policy, even though having one isn't necessary for member-managed businesses. We sent in paperwork demonstrating our case and they didn't care. They kept asking for more proof that we didn't have employees—even though they had no evidence that we did have them. A bit hard to prove a negative!
After several years of back and forth, we finally just said forget it, closed that entity, and started ignoring the monthly shakedown notices. Now I'm wary of even having clients in NYS.
[Edit: I've heard CA is similar, but don't have personal experience there.]