Q.: I would like to market to first-time homebuyers in New York, put them through a nonprofit loan program of which my company is not affiliated and eventually hand them off to a Realtor in New York. My company operates in Nevada and is licensed in real estate. We would collect a referral fee for providing ready-to-purchase homebuyers. Is my company able to market in New York without a state license?
A: As straightforward as the question may seem, unfortunately, the answer is not.
The question brings up fond (not!) memories of law school exams, where we were tested on a concept called “jurisdiction.” Jurisdiction involved questions like, “Is it fair for a particular court to hear this case?” And, “Is this state the appropriate place for the plaintiff to sue?” The answer depended on a number of factors, including whether there was a minimum level of contacts with a particular state or court that made it fair for it to hear the case (as opposed to a different location). Same thing happens with taxes. Why is it fair for your state to tax you? Because you live there, which means you have a substantial connection with your home state. Someone who lives and works in, say, Alaska who does no business in your state should not have to be taxed on income generated in your state because there are “no minimum contacts.”
Here’s what complicates the situation for our inquirer, Bobbie, this week. The threshold for deciding whether Bobbie has enough “contact” with New York state to require that she pay income and sales taxes to N.Y. is different from the threshold of whether she has enough “contact” with New York state to require that she register her company there. What is considered contact? This can include having a physical office within the state, making regular business trips into the state, repeatedly soliciting for clients within the state (as in a direct-advertising campaign) and actually performing services within the state. The two thresholds are different (entity registration is slightly higher) . . . and not clearly set out in either the statutes or case law. This may be the case in other states, too.
On one end of the spectrum, if Bobbie’s contacts with New York are substantial enough that she has to register as an entity, she’ll be required to pay taxes on income derived in New York. At the other end of the spectrum, if her contacts are so minimal that she doesn’t have to pay income taxes to New York state, she won’t need to register in New York. But she could be in a situation where she has to pay taxes but might not need to register.
If you find yourself in a similar situation, your first step will be to speak to your accountant about whether your intended business plans would require you to pay income from activities in another state. Next, it would be wise to speak with an attorney, as these kinds of “jurisdiction” issues are determined on a case-by-case basis.