What Is an Establishment?
An establishment is a business location for a company that is engaged in a single activity. It’s a place where the business is conducted with the objective of getting paid for selling goods or services, even if no specific sales actually take place at that location. An establishment can be:
A factory where goods are madeAn assembly facility where goods are put together, such as an auto assembly plantA warehouse where goods are stored before they’re shipped or soldA retail store where goods are soldAn office where services are performed for compensation
A branch location for a business can be an establishment. For example, if you have a home office in New Jersey and branch offices in Pennsylvania and Maryland, you have establishments in all three of these locations.
What About Home Businesses?
A home business can be an establishment if it otherwise fits the definition, even if it’s not your principal place of business. For example, if you store products at your home, or if you have an office at your home where you transact business, your home can be considered an establishment. The Department of Labor specifies that an establishment is:
Establishments and Taxes
Several taxes rely on the principle of business establishments. If a business has an establishment or place of business in a state, that business has a tax nexus in that state. The state can then impose an income tax on the income of that establishment, and it can also require the establishment to collect, report, and pay sales taxes. At the local level, a business establishment that owns property must pay property taxes.
Establishments in Business Regulation
If your business has multiple locations in different states, you have establishments in those states, and you are doing business in those states. If you have an LLC or a corporation in one state and branches in other states, you might have to have a foreign (out of state) LLC or corporation in another state and pay taxes and other fees in there.
Establishments in Employment Law
The term “establishment” is important in employment law and labor relations because these laws apply to employees at business locations. For example, a store establishment owned by a company in one state might have different applicable labor laws than a store owned by the same company in another state. The Department of Labor uses the term “establishment” to describe business locations visited by OSHA inspectors and to define retail establishments for purposes of the Fair Labor Standards Act (FLSA).
Establishments in Treaties
IRS Publication 597 describes a treaty between the U.S. and Canada relating to income taxes: The treaty sets the right for Canada to charge income tax to a business if it has a service establishment in Canada.
