Arizona and Washington, two states known for their unique landscapes and distinct qualities, offer different environments for businesses looking to form a Limited Liability Company (LLC).
In this side-by-side comparison, we will examine the key factors that entrepreneurs and business owners should consider when choosing between Arizona and Washington for their LLC formation.
From legal requirements and taxation policies to business opportunities and regulatory frameworks, exploring the similarities and differences between these states will help navigate the decision-making process effectively.
Arizona vs. Washington LLC
Arizona LLCs are formed by filing Articles of Organization with the Arizona Corporation Commission, while Washington LLCs require a Certificate of Formation filed with the Washington Secretary of State.
Both Arizona and Washington have pass-through tax systems, where LLCs themselves do not pay state income tax.
However, Arizona imposes a state income tax, while Washington levies a Business and Occupation (B&O) tax based on gross revenue.
Although not legally required, having an operating agreement is strongly recommended for LLCs in both states to outline internal workings and ownership structure.
Consulting with an attorney to create a customized agreement is advisable.
| Arizona LLC | Washington LLC |
|---|---|
| Arizona LLCs require a filing fee of $50 payable to the Arizona Corporation Commission. | Washington LLCs have a higher formation fee of $200 payable to the Washington Secretary of State. |
| It is not required to file an Annual Report with the Arizona Corporation Commission. | It also needs to file an Annual Report with the Washington Secretary of State, and the fee for filing the report is $60. |
| Arizona imposes a flat income tax rate of 2.5%. | Washington has a state income tax with a top marginal rate of 7.6%. |
| It imposes a corporate income tax on LLCs, with a flat rate of 4.9% of the net income. | It has a corporate income tax, with a top marginal rate of 7.6%. |
| Arizona LLCs do not have a Business and Occupation (B&O) tax. | Washington LLCs are subject to the B&O tax, which is calculated based on gross revenue and varies depending on industry classification. |
| It has a state sales tax rate of 5.6%, and local jurisdictions may add additional sales tax. | It has a state sales tax rate of 6.5%, and local jurisdictions may add additional sales tax as well. |
Cost Breakdown of The Two
You may use our free LLC cost calculator by state to find out filing fees, tax percentages, income taxes, and more.
Arizona LLC
The filing fee for forming an LLC in Arizona is $50, payable to the Arizona Corporation Commission.
Arizona LLCs are not required to file an Annual Report with the Arizona Corporation Commission.
Arizona imposes a state income tax on LLC profits, which is based on the LLC’s income and the individual members’ tax rates.
Washington LLC
The filing fee for forming an LLC in Washington is $200, payable to the Washington Secretary of State.
Washington LLCs are required to file an Annual Report with the Washington Secretary of State. The fee for filing the report is $60.
Washington imposes a B&O tax on LLCs, which is calculated based on the gross revenue of the business. The tax rate varies depending on the industry.
Related Posts:
- Arizona LLC: Cost Breakdown, Pros and Cons, Requirements
- Washington LLC: Cost Breakdown, Pros and Cons, Requirements
Similarities Between Arizona and Washington LLC
Both Arizona and Washington LLCs provide limited liability protection to their members.
This means that the personal assets of the LLC members are generally protected from the business’s debts and liabilities.
In most cases, members are only liable for the amount they have invested in the LLC.
LLCs in both Arizona and Washington are recognized as separate legal entities from their owners. This allows them to enter into contracts, own assets, and conduct business in their own name.
Both states follow a pass-through tax system for LLCs.
This means that the LLC itself does not pay income tax at the state level.
Instead, the profits and losses of the LLC “pass through” to the individual members, who report them on their personal tax returns.
Both Arizona and Washington LLCs offer flexibility in terms of ownership and management structure.
LLCs can have multiple members (owners) and can be managed by the members themselves or designated managers.
This flexibility allows for various ownership arrangements and decision-making structures within the LLC.
Compared to other business entities like corporations, LLCs generally have fewer compliance requirements.
Both Arizona and Washington have relatively straightforward filing and reporting requirements for LLC formation and ongoing maintenance, making it easier for entrepreneurs to operate their businesses.
Additional Resources:
- Arizona vs. New Hampshire LLC
- Arizona vs. New Mexico LLC
- Best States to Form LLC For Real Estate: The Ultimate Guide
Steps to Form LLC in Arizona
Choose a name for your LLC that complies with Arizona’s naming requirements.
Conduct a name search to ensure your desired name is available.
Prepare and file Articles of Organization with the Arizona Corporation Commission.
Include necessary information in the Articles, such as the LLC’s name, principal address, registered agent, and member(s).
Pay the required filing fee to the Arizona Corporation Commission.
Consider creating an operating agreement that outlines the internal workings and ownership structure of the LLC (although not legally required, it’s highly recommended).
Obtain any required business licenses and permits at the local, state, or federal level.
Obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) if you plan to have employees or multiple members.
Comply with any additional state and federal tax obligations, such as registering for state tax purposes and filing necessary tax forms.
Steps to Form LLC in Washington
Choose a name for your LLC that complies with Washington’s naming requirements.
Conduct a name search to ensure your desired name is available.
Prepare and file a Certificate of Formation with the Washington Secretary of State.
Include necessary information in the Certificate, such as the LLC’s name, registered agent, and principal office address.
Pay the required filing fee to the Washington Secretary of State.
Consider creating an operating agreement that outlines the internal workings and ownership structure of the LLC (although not legally required, it’s highly recommended).
Obtain any required business licenses and permits at the local, state, or federal level.
Obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) if you plan to have employees or multiple members.
Comply with any additional state and federal tax obligations, such as registering for state tax purposes and filing necessary tax forms.
File an Annual Report with the Washington Secretary of State each year and pay the associated fee to maintain the LLC’s active status.
Feature Comparisons Between Arizona LLC vs. Washington LLC
Formation Requirements: In terms of formation requirements, both Arizona and Washington require filing specific documents with their respective state agencies.
(Arizona Corporation Commission and Washington Secretary of State). The required information generally includes the LLC’s name, registered agent, and principal address.
Limited Liability Protection:
Both Arizona and Washington LLCs provide limited liability protection to their members, meaning that the personal assets of the members are typically shielded from the LLC’s debts and liabilities.
Pass-Through Taxation: Both states follow a pass-through tax system for LLCs.
This means that the LLC itself does not pay state income tax. Instead, the profits and losses of the LLC pass through to the individual members, who report them on their personal tax returns.
Operating Agreement: Although not legally required in either state, having an operating agreement is highly recommended for both Arizona and Washington LLCs.
This document outlines the internal workings, ownership structure, and member rights and responsibilities of the LLC.
Business Licenses: Both Arizona and Washington may require LLCs to obtain business licenses and permits at the local, state, or federal level, depending on the nature of the business and its location.
Business Environment
Both Arizona and Washington offer favorable economic climates for businesses.
Arizona has a diverse economy with strong sectors such as healthcare, manufacturing, tourism, and technology.
Washington is known for its thriving technology industry, aerospace, agriculture, and maritime trade.
Both states have experienced steady economic growth and offer opportunities for business development.
Both Arizona and Washington provide various resources and support for businesses.
They have government agencies, chambers of commerce, and business development organizations that offer guidance, networking opportunities, and access to financing programs to help entrepreneurs and businesses succeed.
Arizona and Washington both have vibrant entrepreneurial cultures, with a growing ecosystem of startups and innovation.
They offer access to talent pools, incubators, and accelerators that foster entrepreneurship and support the growth of new ventures.
When considering the tax environment, there are some differences between Arizona and Washington.
Arizona levies a state income tax on LLC profits, while Washington does not have a personal income tax.
However, Washington imposes a Business and Occupation (B&O) tax based on gross revenue, which can affect LLCs operating in the state.
Both states have their own regulatory frameworks governing businesses, including licensing requirements and compliance obligations.
It is important to be aware of the specific regulations and ensure compliance with the respective state’s laws when operating an LLC in Arizona or Washington.
Both Arizona and Washington have skilled workforces and access to educational institutions that produce a steady stream of talent.
Each state offers opportunities to tap into a diverse and qualified labor pool to support the growth and operations of LLCs.
Read Also:
Arizona vs. Washington Taxes
Arizona Taxes
Arizona imposes a flat income tax rate of 2.5%.
Arizona also levies a corporate income tax on C corporations. The corporate tax rate is a flat rate of 4.9% of net income.
Arizona has a state sales tax rate of 5.6%. However, local jurisdictions may add additional sales tax, resulting in varying total sales tax rates across the state.
Washington Taxes
Washington has a state income tax with a top marginal rate of 7.6%.
Instead of an income tax, Washington imposes a B&O tax on businesses.
The B&O tax is calculated based on the gross revenue of the business and the specific tax rate depends on the industry classification.
Washington has a state sales tax rate of 6.5%. Local jurisdictions may add additional sales tax, resulting in varying total sales tax rates across the state.
It’s important to note that tax laws can change over time, and there may be additional taxes or exemptions applicable to specific industries or circumstances.
Consulting with a tax professional or accountant is recommended to get accurate and up-to-date information on tax obligations and considerations for LLCs in Arizona or Washington.
Flexibility in Rules and Regulations
Both Arizona and Washington have licensing requirements for certain types of businesses.
However, the specific licensing requirements and processes can vary between the two states.
It is essential to research and comply with the licensing requirements specific to your industry and location in either state.
Both states have regulations and reporting obligations that businesses, including LLCs, must adhere to.
This includes filing annual reports with the respective state agencies, maintaining proper records, and fulfilling any industry-specific compliance requirements.
It is important to stay informed about the specific compliance obligations in your state to ensure compliance and avoid penalties.
LLCs are generally known for their flexibility in terms of corporate formalities compared to other business entities like corporations.
Both Arizona and Washington provide a certain level of flexibility in terms of governance and administrative requirements for LLCs.
However, it is important to maintain good recordkeeping practices, follow any necessary internal procedures, and adhere to state requirements to maintain the limited liability protection and proper functioning of the LLC.
While an operating agreement is not legally required in either Arizona or Washington, it is highly recommended for LLCs in both states.
The operating agreement allows LLC members to customize the internal rules, ownership structure, and decision-making processes of the LLC.
This provides significant flexibility in determining how the LLC will be managed and how key business decisions will be made.
Both Arizona and Washington provide some flexibility for tax planning within the respective state tax systems.
LLCs can take advantage of deductions, credits, and other tax planning strategies to optimize their tax obligations based on the specific rules and regulations in each state.
Key Differences Between Arizona and Washington- An Overview
