Form 5472 and State Tax: What Foreign LLC Owners Owe (2026)

This deserves stating first because it removes a worry that occupies a lot of founders. Form 5472 sits in the Internal Revenue Code, is administered by the IRS, and is filed by post or fax to Ogden, Utah. States operate their own tax systems with their own returns, and none of them has built a parallel related-party reporting regime for LLCs. Filing your Form 5472 correctly discharges that obligation completely — there is no second, state-level copy to worry about.

The two systems do not interact in either direction. Your state annual report does not mention Form 5472, and Form 5472 does not ask where you are registered beyond the entity’s address. What can catch founders out is assuming the converse — that because there is no state Form 5472, there is nothing owed at state level at all. That is where the $800 California invoices come from.

• Annual report / statement of information. A short filing confirming the registered agent, address, and often the members or managers. Nearly every state requires one; the fee is usually modest. Missing it leads to administrative dissolution.
• Franchise or minimum tax. A charge for the privilege of existing in the state, owed whether or not the LLC trades. California’s $800 is the well-known example; Delaware’s $300 LLC tax is another.
• Registered agent. Not a tax, but a mandatory recurring cost — typically $50–$300 a year, and non-negotiable for a founder with no US address.
• State income tax. Only where the LLC has nexus in that state. A pass-through LLC’s income is generally taxed to its members, which for a nonresident member raises state non-resident filing questions where there is in-state source income.

For the overwhelming majority of foreign-owned single-member LLCs — a consultancy, an agency, a SaaS product with no US premises or staff — only the first three apply. The fourth becomes live when the business acquires a real footprint somewhere.

California is the one to understand properly

The $800 minimum franchise tax is the single most common unexpected bill for foreign founders, and its reach is wider than most people assume. It applies to any LLC organised in California and to any LLC doing business in California — a test California interprets broadly, including through the presence of a member or manager operating from the state. It is owed for every year the LLC exists, in profit or loss, active or dormant, until it is formally cancelled with the Secretary of State. Simply abandoning the entity does not stop the clock; the liability accrues and the FTB pursues it.

The separate LLC fee sits on top and is charged on California-source gross receipts, not profit: $900 from $250,000, rising in bands to $11,790 above $5 million. A high-revenue, low-margin business can owe a substantial California fee while making very little money.

Nexus is the connection that gives a state the right to tax you, and it changed materially after South Dakota v. Wayfair (2018) abolished the physical presence requirement for sales tax. Most states now assert economic nexus once a seller passes a revenue or transaction threshold, typically $100,000 in in-state sales, with some states also counting transaction volume.

For a founder based entirely outside the United States with no US premises, staff, or inventory, nexus usually arises only in the state of formation — which is exactly why Wyoming and New Mexico are popular. The picture changes the moment goods are stored or people are hired in the US, and that same change usually raises the federal question of whether there is a US trade or business too.

FBA is the hardest state-tax fact pattern for foreign sellers because Amazon moves inventory between fulfilment centres without asking. A seller who shipped stock to one location can find it distributed across a dozen states within weeks, each of which may regard that stock as physical presence.

The practical position improved substantially with marketplace facilitator legislation, now in force in every state with a sales tax. Those laws make the marketplace — Amazon — responsible for collecting and remitting sales tax on marketplace sales, which removes the bulk of the compliance burden from the seller. What can remain is a registration obligation in some states, and an income tax question in states that treat stored inventory as income tax nexus.

The more consequential issue for a foreign seller is federal. US-based inventory is one of the clearest indicators of a US trade or business, which can make the profits effectively connected income and taxable in the United States — a far bigger number than any state fee. That analysis is on the effectively connected income page, and the seller-specific view in the e-commerce founders guide.

The terminology confuses nearly every non-US founder on first contact. A “foreign LLC” in state law means an LLC formed in a different state— a Wyoming LLC is a foreign LLC in California. It has nothing to do with the owner’s nationality, and nothing to do with the federal meaning of foreign-owned that drives Form 5472.

• When it applies. Where the LLC has a physical office, employees, or is otherwise transacting business in a state other than its formation state. Merely having customers there is usually not enough.
• What it costs. A registration fee, a second registered agent, and that state’s ongoing annual report and franchise tax — the full stack, doubled.
• What happens if you skip it. Penalties, back fees, and in many states loss of the right to bring a lawsuit in that state’s courts until you register.
• Why most foreign founders never need it. With no US office and no US staff, a Wyoming or New Mexico LLC is doing business only where it was formed.

This is the mechanism behind the most expensive state-level mistake foreign founders make: forming in a low-fee state while actually operating from a high-fee one. If a member manages the business from California, California will generally treat the LLC as doing business there — foreign qualification, the $800 minimum franchise tax, and the LLC fee all follow, and the Wyoming certificate does nothing to prevent it. Choosing a formation state is covered on the best state for a foreign-owned LLC.

This catches people in a specific and avoidable way. A founder stops paying the Wyoming annual report, the state administratively dissolves the LLC, and they conclude the company is gone and nothing more is owed. It is not. The entity still has an EIN, the tax year still happened, and the reportable transactions in it still require a Form 5472. Administrative dissolution at state level does not close the federal file.

Properly winding up means both: dissolve or cancel with the state and file the final federal return with Form 5472 for the final period. Skipping the second half leaves an open year that, under IRC §6501(c)(8), never closes — explained in the statute of limitations post. If a year has already been missed, see catch-up filing.

The full annual picture — federal and state, in order — is set out in the annual compliance checklist, and state selection is covered on the best state for a foreign-owned LLC.

The proportions tell the story. State compliance for a well-chosen jurisdiction costs perhaps a hundred dollars a year and carries a modest consequence for failure. The federal filing costs $299 and carries a $25,000 consequence. Founders routinely spend more energy on the first than the second.

form5472.tax prepares and files Form 5472 with the pro forma Form 1120 for a flat $299 — against $547 at form5472.online and $1,999/year at doola, both of which bundle state services you may not need. See the pricing page, the cost comparison, or start on the apply page.