Incorporating in Nevada can give some companies a number of benefits, said Clarke Whitney, president and founder of the Bremerton firm Clarke Whitney CPAs, including no state income tax, minimal fees, and strong confidentiality laws. But most of those advantages would really only benefit large, multi-state or multi-national companies.

“If you’re doing business solely in the state of Washington it doesn’t make much sense to incorporate in Nevada,” he said.

“I haven’t done any in-depth research,” said Silverdale attorney and business tax specialist John San Fellipo, “but I’ve heard some of the ads.” His opinion is that many of the benefits that are being advertised are exaggerated, and not necessarily applicable to companies doing business primarily in Washington.

“You’ll hear ‘form a corporation in tax-free Nevada,’” he said, “so one of the things people think they are going to get is tax advantages.”

But federal income tax is state-neutral, so the state of incorporation doesn’t alter federal income taxes. And any company doing business in Washington still has to pay business and occupation taxes here. Plus a company incorporated outside of the state must qualify as a “foreign” – or out of state – corporation to conduct business in Washington, which means in addition to filing fees and payments in the state of incorporation, that company would also have to file foreign corporation fees here, potentially doubling the fees being paid each year.

There are a number of Web sites available that advertise services to help businesses incorporate in Nevada. Some of the advice offered on these sites, could be construed as “borderline tax abuse,” said San Fellipo.

“There are things that don’t pass the smell text,” he said.

Other, more scrupulous sites exist, however, such as Business Filings, Inc., an online service that provides incorporation resources for small business owners in all 50 states.

According to Business Filings’ Web site, www.bizfilings.com, “If the corporation is a closely held corporation that does business primarily within a single state, local incorporation is typically the best decision. The cost of local incorporation will usually be less than incorporating in another state and qualifying to do business as a foreign corporation in that state.”

“I always recommend that my clients who are doing business in Washington to be incorporated here,” said Bremerton attorney Ed Wolfe. “I can certainly keep better tabs on my clients in Washington than in Nevada… since I’m not licensed to practice there.”

Although comparisons to Delaware are inevitable, San Fellipo doesn’t necessarily see a lot of parallels. In the past, he said, Delaware was popular as a state of incorporation because it used to have very favorable laws protecting corporate officers and directors, as well as other benefits that many states didn’t offer.

“But a lot of state laws have changed,” he said, moving towards the Delaware model as states compete for corporate filing fees.

“Delaware was ahead of the power curve,” said San Fellipo, “But the general trend in the law [across states] is to follow Delaware’s lead.”

Businesses have different needs. It may very well be that Nevada incorporation is the right step for one company, and a misstep for the next. Any Washington business owner considering incorporating in Nevada should first consult with a Washington attorney or tax specialist to review the pros and cons.

“People want to believe certain things,” said San Fellipo, “But a lot of this seems to be people taking advantage of other people.”

(Editor’s Note: This article is designed for informational purposes only and is not intended as legal advice. You should seek the advice of your own attorney or corporate counsel if you have specific questions about the issues addressed here.).