Authority to Transact Business; A Trap for the Unwary

Canada Ltd. is in the business of providing automated equipment for factories. Canada Ltd. has been “quietly” doing business in the US for 13 years with revenues in the millions without having registered with the IRS or local tax authorities in five states. Canada Ltd.’s new Controller decides to “start anew” and completes forms in five (5) states to register as a foreign corporation authorized to transact business. In the middle of each state’s application is the question “When did you start doing business in the state?” The Controller inserts a date 13 years ago subjecting Canada Ltd. to a 13 year look back for state taxes.

A new US Corporation US Corp is formed as a wholly owned subsidiary to Canada Ltd. Again the same question: “When did US Corp. begin to do business in the US?” Answer: “US Corp. has to date not transacted business in the US.” The look back tax liability for US Corp. is eliminated.