What is the legality of opening separate entities in different states to save on sales tax?

UPDATED: Jan 4, 2011

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What is the legality of opening separate entities in different states to save on sales tax?

I want to open an XYZ LLC in DEand use that for internet orders places by customers. I then want to open a separate ABC LLC in CA and use that LLC store for customers to pick up their orders as an affiliate pick up location. Would that be considered legal? I’m trying to see if my customers can save money on tax.

Asked on January 4, 2011 under Business Law, California


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 12 years ago | Contributor

You MUST consult with a tax planner or tax attorney about this before you do anything--the tax laws and their interaction across state lines or jurisdictions are very complex, and the penalties for violating them severe. You need expert guidance, tailored to your specifics. My strong belief is that you can't do this, because (1) generally, taxes paid depend on where the transaction actually occurs, not where the corporate "headquarters" or "backoffice" is--so if there's a brick and morter location in CA where the goods are pijcked up, CA will probably want it's taxes; and (2) if it was that easy, everyone would do it--and then they'd pass a law to close that loophole.

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