When a company changes its home state – also known as its domicile state – it is called “redomestication.” The process transfers the company’s charter to a different state from where it was legally formed.
Entrepreneurs have many reasons for such a move, including more favorable taxes and fees, reduced regulations, access to a more diverse workforce, lower real estate costs or responding to market changes while seeking better opportunities in a new state.
Things to keep in mind
In a previous article, we detailed the exodus of medium to large companies from other states to Texas over the past couple of years. We also explained how to convert an out-of-state business to a Texas entity. But before you make any moves, here are some crucial considerations:
1. Redomestication differs from foreign qualification
Under foreign qualification, enterprises are legally registered in their home state and others. Companies must follow the rules and regulations of all states where they are registered. Under redomestication, the company effectively ceases to exist in its former domicile state.
2. Do not forget to notify the IRS
The Internal Revenue Service will need to update its records when your location changes, so the new address matches your Employer Identification Number (EIN) or other tax ID number. Forgetting to do so will create some headaches.
3. Prepare for applicable taxes
While Texas has no state income tax, an employer’s effective Unemployment Insurance (UI) tax rate is determined by five components. The effective rate ranges from a minimum of 0.31% to a maximum of 6.31% in 2022.
4. Banking changes may be needed
If your current bank is not chartered nationally, you may need to open a new business account with a Texas bank and close your account in your former domicile state.
5. Review permit and business license requirements
A major perk of relocating to the Lone Star State is its business-friendly regulatory environment and streamlined permitting process. But it is crucial to know what is required depending on your industry and location. This may include sales tax registration if you sell goods or services statewide.
Redomestication provides many benefits for companies seeking to change their domicile state to Texas. However, it is crucial to assess potential tax and legal ramifications. It is advisable to consult with an experienced business lawyer who understands Texas rules and regulations and everything else involved before deciding to relocate your business.