I’m a Deloitte Tax alum, CPA, interim CFO, and I prepare 150+ startup (DE C-Corp) tax returns every year.
If you’re a startup that is seeking VC investment in the future, you must be a Delaware C Corp. VC’s cannot invest in LLC’s and S Corps without creating serious tax consequences for their fund investors.
If you’re a small business…. consult your local CPA.
Either way,** where you actually pay taxes depends on where you have Sales, Property/Rent, and Payroll**. This apportionment calc can be tricky, so you should consult with a CPA. Take these two examples, both of which are San Francisco based DE C-Corps:
Company A is a software dev company and has it’s headquarters/payroll in SF and is a DE C-Corp. It files a CA and Federal tax return, but it also pays Connecticut Sales Tax because it’s sole customer is based in Connecticut (and CT for some weird reason taxes software dev!).
Company B is an app company and has it’s headquarters in NYC and is a DE C-Corp. It has nationwide revenue, but the vast majority of its employees are in NY, NJ, and MA. It files a NY, NJ, MA, and Federal tax return.