What you should know before moving your construction business
Are you planning to move your business to another state? There are legal aspects you need to be aware of before moving your construction business if you’re going to make a smooth transition.
Moving a construction business is much easier for sole proprietorships and partnerships than for corporations or LLCs. However, regardless of how your business is organized, what’s necessary to close the business in your current state, tax implications, and procedures for registering the business in a new state must all be satisfied.
Sole proprietorships and partnerships
Moving proprietorships and partnerships is relatively straightforward. You must submit a DBA (doing business as) form in your new state, as well as file a form to abandon your existing DBA in your current state. Various states will allow you to file new DBA requests at your county clerk’s office, but others require you to register at the state level. Additionally, some states require that you publish a notice of your previous DBA abandonment in a local newspaper for several weeks.
Since tax obligations for sole proprietorships and partnerships, fall to the business owner, the tax implications for moving your business to another state are not complicated, but consult your tax advisor and attorney in advance of your move.
Limited liability companies (LLCs)
If you plan to move your LLC to another state, you should absolutely consult your attorney and accountant as there are several options to consider, each with its own tax consequences. You can:
- Dissolve your current LLC and establish a new LLC in your new state.
- Register a new LLC in your new state, and have all LLC members transfer their ownership percentages to the new LLC.
- Continue your existing LLC and register to do business in your new state as a foreign LLC. This option will require you to provide duplicate annual reports and increases the complexity of tax filings for the LLC and its members.
- Form a new LLC in your new state and merge the previous LLC into it. The IRS considers this a continuation of the original LLC, so a new EIN (employer identification number) is not required.
Corporations (S Corp and C Corp)
Moving a corporation is very similar to relocating a LLC to a new state with similar tax implications and annual state filings. You can dissolve the corporation in the old state and form a new one in the new state. Or you can continue the corporation in your current state and register in your new state as a foreign corporation. And finally, you can reorganize and merge your existing corporation into a new corporation formed in the new state.
Be sure to consult your attorney and accountant to help you decide which method is most advantageous for moving your construction business.
Additionally, both LLCs and corporations that are planning to relocate should hold formal meetings with shareholders to decide the course of action. The move will require the written consent of the shareholders.
Licenses and registrations
When moving your construction business, you’ll follow the same regulatory and legal steps that you did when you started the business, but be aware every state and municipality have different regulations regarding licensing contractors.
As an example, if you are a plumber or electrician, the rules vary significantly depending on where you are performing the work. Some states only require the parent company to obtain a single plumbing license, while others require each individual plumber to be licensed, as well as the parent company.
Electricians may not only need a state license, but also a license in each specific town they do work in.
And believe it or not, some states don’t require any licensing at all. So check both state and local municipalities where you plan to work so you know exactly what it takes to get new licenses and registrations at the state, county and local levels.
Cancel all existing licenses, permits and registrations in the state you are leaving. You don’t want someone using your old business credentials after your business has moved.
As mentioned above, tax consequences vary widely based on how your construction business is organized and the laws within the state you are moving to. One basic step is to close out your tax year in the state you are leaving. This can be as simple as checking ‘Final Return’ on your state tax return.
The costs of moving your construction business can be deducted or capitalized. Those costs can include scouting for a new office; moving costs; and related trip, travel and meeting costs. Several websites are available to help you understand other costs related to the move that can be deducted.
Check for tax incentives before relocating. Even if you only employ a few workers in a state, your company may qualify for special tax breaks, such as tax abatements or special tax credits. Contact the economic development agency in the new state to learn more.