When you expand to another state, your business entity may need to register there as a foreign entity, meet any rules for professional entities owned by licensed clinicians, and handle local business registrations. You may also create tax obligations in the new state. These rules vary widely, so work through them with an accountant and an attorney licensed in that state.
Most clinicians approach expansion as a licensing project. The board application, the jurisprudence exam, the verification letters. Once the license is issued, it feels like the work is done. If you practice through a business entity such as an LLC or a professional corporation, there is a second set of questions that has nothing to do with the licensing board.
Nothing in this post is legal or tax advice. The rules here vary widely from state to state, change over time, and turn on facts specific to your practice. Use it to prepare better questions for an accountant and an attorney licensed in the new state.
Separating the clinician from the business
Your license authorizes you, as an individual, to practice marriage and family therapy in a state. Your LLC or corporation is a separate legal creature formed under the law of one state. When that entity contracts with clients, collects fees, or holds payer agreements in a second state, the second state may have its own requirements for it.
This distinction also matters for payers. If insurers contract with your entity rather than with you individually, they may expect the entity to be in good standing in the state where services are furnished.
Foreign qualification
Most states require a business formed elsewhere to register before transacting business within their borders. This is usually called foreign qualification or registering as a foreign entity, and it is filed with the secretary of state or a similar office. It typically involves a filing fee, a certificate of good standing from your home state, and a registered agent with an address in the new state. Annual or periodic reports often follow.
The hard question is what counts as transacting business. A physical office clearly does. Whether serving clients by telehealth from another state crosses that line is less settled and differs by state. Some practitioners register as a precaution; others conclude, with advice, that they do not need to. Make that decision deliberately with an attorney, not by default.
Professional entity rules
Many states have special rules for entities that provide licensed professional services. A professional LLC or professional corporation may need its owners to be licensed in the state, may be limited in which professions can share ownership, and may need approval or registration with the licensing board in addition to the secretary of state.
If your entity was formed as a professional entity in your home state, confirm that the new state will accept it as a foreign professional entity. In some cases, practitioners find it simpler to form a separate entity in the new state. That choice has tax and administrative consequences, so weigh it with your advisors.
Local registrations
Beyond the state level, cities and counties may require a business license or registration, particularly if you have a physical office, including a home office, within their limits. Zoning rules sometimes apply to home-based practices. If you are only seeing clients in the new state by telehealth and have no physical presence, local requirements may not apply, but check with the city or county rather than assuming.
Tax nexus, conceptually
Nexus is the term for the connection that gives a state the right to tax a business or person. States define it differently. Physical presence, such as an office or employees, commonly creates it. Some states also look at the amount of revenue earned from customers located there. Whether remote clinical services create nexus, and how income should be divided among states, depends on the state's rules and your specific facts.
Possible consequences include filing a nonresident or business income tax return in the new state, paying a franchise or gross receipts tax, and registering for state payroll taxes if you hire anyone located there. Keep records of revenue by client location from the start, because an accountant will ask for it. Do not assume that telehealth income belongs only to the state where you sit, and do not assume it belongs to the client's state; get professional advice.
A short checklist for your advisors
Bring these questions to an accountant and an attorney: Does my entity need to register in the new state? Will the state accept my professional entity as formed? Are there board registration requirements for the entity? What local licenses apply? Do my activities create a filing obligation, and how should revenue be tracked? Answers to those five cover most of what trips people up.
Common questions
- Does my LLC automatically operate in any state where I am licensed?
- No. Your license authorizes you to practice, but your entity was formed under one state's law. Many states require an out-of-state entity doing business there to register, often called foreign qualification. Whether telehealth alone counts as doing business varies, so ask an attorney familiar with that state.
- Can a professional LLC formed in one state register in another?
- Sometimes, but professional entity rules differ. Some states require that owners hold a license in that state or restrict which professions may be combined in one entity. Check the new state's professional entity rules with the secretary of state and an attorney before filing.
- Will seeing clients in another state create tax obligations there?
- It might. States use different standards to decide when an out-of-state business or individual owes income or franchise tax. Whether remote telehealth creates that connection depends on the state and your circumstances. Consult a tax professional rather than assuming either way.
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