Nevada in June 2016: the filing fee is $75, the real number is $425

This is a guide for someone forming a Nevada LLC in June 2016. It will not rehearse the marketing case for the state; you have heard it. It will tell you what the state actually charges, what maintenance looks like, and whether the pitch still holds up in the year the Commerce Tax begins collecting.

The mechanics

You file Articles of Organization with the Nevada Secretary of State. The form is short: entity name, registered agent (a Nevada resident or a registered business with a Nevada office), dissolution date if any, management structure (member-managed or manager-managed), and the names and addresses of the initial managers or managing members. You sign and submit. The state's SilverFlume portal takes credit cards and will return a filed-stamped copy the same day for routine work if you file in the morning; paper filings move on a one- to two-week cadence and longer if the examiner has questions.

The Secretary of State's fee schedule is where the real cost appears. Articles of Organization: $75. Initial List of Managers or Managing Members, due with formation: $150. State Business License, also due with formation and administered through the same office: $200. The all-in to open a Nevada LLC is $425, paid in one sitting. Expedited service is sold on a menu similar to Delaware's, with 24-hour, two-hour, and one-hour tiers priced from $125 up to $1,000 depending on urgency. Most routine formations do not need expedite; the regular queue has moved faster in 2016 than it did three years ago, and the SOS has been publicly working down backlog.

You will then need an EIN from the IRS, an operating agreement (Nevada does not require you to file one and does not want to see it), and a tax classification decision. Single-member LLCs default to disregarded entity treatment; multi-member LLCs default to partnership. Nevada has no state income tax, so the federal election is the only one that matters for most formations.

Maintenance is where people get it wrong

Every year, a Nevada LLC owes two things to the Secretary of State: an Annual List of Managers or Managing Members ($150) and a State Business License renewal ($200). Together that is $350 a year, due by the last day of the LLC's anniversary month. Form in June 2016, and both are due again by June 30, 2017.

Miss the deadline and the state charges a $75 late fee on the list and a $100 late fee on the business license, then moves the entity to default status. Default is not dissolution, but it strips the LLC of the right to transact in the state and compounds penalties month over month. Reinstatement requires paying the current year, any missed years, and the late fees — which is how a founder who ignored mail for two years can be looking at a bill well above a thousand dollars to bring a dormant entity current.

The notice the state sends looks official and arrives on time. It is not the problem. The problem is that founders who formed in Nevada because a promoter told them to, and who do not actually live or work there, forget they have a Nevada entity at all. By the time they remember, the entity is in default and the reinstatement math is worse than simply forming fresh somewhere else.

One useful detail: the State Business License is also owed by corporations and by most foreign entities registered to do business in Nevada, at the same $200 rate. If you form an LLC and then qualify it in a second state, you are still paying Nevada $200 every year for the license, plus the other state's fees on top. This is the arithmetic that undoes a lot of "form in Nevada to save money" advice.

The registered-agent market

Every Nevada LLC needs a registered agent with a physical Nevada address. The market looks like Wyoming's — a commodity at the low end, a competent-professional tier in the middle, and a set of full-service firms serving lawyers and multi-entity holding structures at the top. The difference from Wyoming is that Nevada has more mills: promoter outfits that bundle formation, agent service, a nominee officer, and a phone number into a package pitched on radio ads and YouTube videos about "bulletproof asset protection." Those packages typically run $800 to $2,500 for the first year, most of which is margin.

At the commodity end, expect to pay $100 to $150 a year for a Nevada agent. At the professional end, $200 to $400. Above that you are paying for nominees, mail forwarding with scanning, and compliance reminders that mostly duplicate what the state already sends. If this is your first Nevada entity, pick a professional-tier agent with a known name and no upsells in the first email they send you. Anyone who opens with nominee services before they know what your business does is selling, not advising.

Who this state actually makes sense for

The pitch for Nevada has been two things: privacy (the Annual List is the only public record of who runs the company, and it accepts nominee names) and no state income tax. Both are narrower than they sound in 2016.

The privacy edge has been chipped at by federal developments and by banks and payment processors that demand beneficial-ownership disclosures regardless of what the state files. If your reason for forming in Nevada is that you would prefer your name not be on a public document, a nominee manager will get you that; it will not keep your name off a bank's customer-identification file, a payment processor's application, or a subpoena return. The privacy you can buy from the state is worth exactly what the state collects.

The no-income-tax pitch is real but not unique. Wyoming, South Dakota, Texas, Florida, and Washington all have no personal income tax, and Wyoming charges roughly a quarter of what Nevada does to form and maintain an LLC. Nevada's answer has long been that it had no gross receipts tax either. That answer changes this summer. The Commerce Tax, enacted in 2015, imposes a tiered gross-receipts levy on businesses with Nevada-sourced revenue above $4 million; the first returns are due in August 2016, for the fiscal year that ended June 30. Most small LLCs will file a zero or be below the threshold, but the existence of the tax has changed the story the state tells, and the administrative overhead of a new return has changed it further.

Three kinds of entities still belong in Nevada. A Nevada-operating business — a restaurant, a contractor, a dispensary, a casino affiliate — forms at home and pays the freight because it has to. A holding vehicle for a Nevada-resident founder with real estate or operating companies in the state is reasonable for the same reason. And a family-office structure that has been in Nevada for a generation has reasons to stay that have nothing to do with the 2016 pitch.

Everything else — the California consultant forming in Nevada to "save on taxes," the out-of-state rental-property LLC, the e-commerce side-business forming because of a YouTube ad — is paying $425 upfront and $350 a year for something Wyoming will sell for less and a home-state filing will handle better. For operating businesses that would otherwise consider Delaware, the Nevada cost advantage that existed in 2005 has quietly closed; on a ten-year horizon, the two states cost about the same to keep alive, and only one of them has the Court of Chancery.

If you are forming in Nevada this quarter because your business is in Nevada, file this week and budget $425. If you are forming in Nevada because someone on the internet told you to, spend the filing fee on a one-hour consult with a tax adviser in your home state first. The Commerce Tax notices going out this August will be the clearest signal in a decade that the old pitch has aged.