Upstream Income

One of our clients Mary and Bob owned XYZ company. Colorado marketing consulting company located in Colorado had developed a program for real estate professionals that helped them find and retain clients.
This program was written and held in multiple binders. Mary worked with real estate offices, teaching the techniques to the agents and developing in-house programs.
Could this company be moved to Nevada? Mary wanted to know if she should incorporate in Nevada to reduce or eliminate the Colorado income tax on the business income. The answer, unfortunately, was that she could not. Business income is earned based on where the product or service is located and where the order is placed. In Mary & Bob's case, they perform a function at her client's site exclusively in the Colorado area, receiving payment in Colorado. It differs from the multi-level marketing companies where once established, passive income goes directly to a company located where you wish.

Upstream Income
There was still a solution possible to Mary and Bob, however. They were able to "upstream" income to Nevada.
In their case, a separate C corporation was established in Nevada. This business was held separately from their Colorado business, so that no controlled group status existed. The Nevada business held ownership of the product - the manual training system. A royalty was paid to the Nevada corporation for each use of that system. This royalty was income to Nevada, but a deduction other Colorado business.

We were able to handle the entire transaction. Today Mary and Bob are very successful and one of our most loyal clients.

(The names are fictional, but the case is real.)

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