Key Takeaways

  • The principal place of business refers to where a company’s officers direct, control, and coordinate operations—its “nerve center.”
  • Determining this location is crucial for legal jurisdiction, tax reporting, and compliance with state and federal regulations.
  • The IRS uses specific tests to establish whether a home qualifies as a principal place of business for deductions.
  • Remote and hybrid companies may designate a virtual office or registered agent address when no physical headquarters exists.
  • Misidentifying the principal place of business can result in tax penalties or legal disputes regarding jurisdiction.

What is Your Principal Place of Business?

This question is not as simple as it sounds. For a sole proprietor or a one-location company, the answer is straightforward – your principal place of business is your home, shop, office, or wherever you primarily do business. But large companies and corporations often have several locations spread out across the country, or even around the world. In these situations, the company headquarters is usually the principal place of business. This is not necessarily the same state as the state of incorporation.

The supreme court finally ruled that the “nerve center” of the company is the principal place of business. The nerve center test refers to the single place where a corporation’s officers direct, control, and coordinate the corporation’s activities. In practice, it is usually where the headquarters are, as long as the headquarters are the center of direction, control, and coordination. It has to be more than merely an office where the leaders of each location meet, such as where board members hold their meetings. To be considered the principal place of business, it must actually be the place that is in control of the corporation.

Determining the Principal Place of Business for Different Entities

The definition of a principal place of business can vary slightly depending on the type of business structure. For corporations, it’s typically the headquarters or main office where high-level officers manage and coordinate activities—the “nerve center.” For LLCs and partnerships, it often refers to the primary office where business decisions are made, client interactions occur, and company records are maintained.

For multi-state corporations, the principal place of business may differ from the state of incorporation. Courts use the nerve center test established by the U.S. Supreme Court to determine this location, focusing on where top executives conduct business operations and make policy decisions.

For sole proprietors, the location where they perform the majority of their administrative tasks or client meetings is considered the principal place of business. In today’s flexible work environment, this could be a home office, rented space, or coworking hub, provided it meets IRS requirements.

Why is the Principal Place of Business important?

The principal place of business is important both for the IRS and for purposes of litigation. If a plaintiff lives in a different state than a defendant which happens to be a business, and the plaintiff sues the defendant, then there is what is called ‘diversity of citizenship’ and that could affect which court the lawsuit can be filed into. If there is a diversity of citizenship, and the amount in dispute is over a certain number, then the case might be appropriately filed in Federal court, as opposed to state court.

Even with the Supreme Court clarifying the definition of the principal place of business, it may not always be so simple as described above. There are still times when an officer could wear multiple hats and serve both a subsidiary corporation and parent corporation at the same time, and therefore controls and coordinates corporate activities from multiple states, which could confuse where the principal place of business actually is.

Legal and Jurisdictional Implications

The principal place of business determines where a company can be sued and which court system has jurisdiction over legal disputes. Under federal law, it is a key factor in establishing diversity jurisdiction—whether a case qualifies for federal or state court. For example, if a company is incorporated in Delaware but operates primarily from California, its principal place of business is California.

Businesses must list their principal place of business when registering with the Secretary of State, filing annual reports, and applying for licenses. This information is also public and can influence which tax and regulatory laws apply to the entity.

Additionally, designating the wrong location can cause complications in tax filings, business insurance coverage, and corporate compliance. Companies should ensure that the address listed aligns with where executive decisions are made, not merely where mail is received or meetings occur.

Tax Benefits and the Principal Place of Business

The IRS is very interested in what you consider your principal place of business because this is usually where the books and records are kept. It also allows many business owners to take certain deductions, depending on where their principal place of business is located. Corporations are usually required to report their principal place of business to the Secretary of State. For a home business, things get a bit trickier.

If you work at home or use your home as a base of operations for contracting businesses like landscaping or roofing, you must be able to prove that your home is your principal place of business. If you have multiple places of business, in order to determine the principal place, the IRS will look at the relative importance of the activities performed at each place, and the amount of time spent at each place where one conducts business.

Principal Place of Business for Remote and Virtual Companies

With the rise of remote work, many businesses no longer operate from a fixed physical location. However, every company—remote or otherwise—must still have a principal place of business for legal and tax purposes.

For fully remote teams, the principal place of business is typically the address where business records are stored and management activities are directed. Some companies designate a registered agent address or a virtual office that meets state requirements for official correspondence.

Virtual offices and mail-forwarding services can provide a stable business address even if the team works from multiple states. However, it’s important to ensure the address is recognized for compliance and tax reporting. Using a personal address for business purposes can expose privacy risks and blur personal-business boundaries, so business owners often use virtual addresses to maintain professionalism.

When choosing a principal place of business without a physical office, consider the following factors:

  • State tax laws: Some states impose higher business taxes or franchise fees.
  • Regulatory environment: Certain states have more favorable business laws and compliance requirements.
  • Mail and service of process: The address must accept official legal documents.
  • Corporate presence: Choose a location that reflects where significant decisions occur, even for distributed teams.

For the IRS, two main conditions must be met:

  • The section of your home that you designate as your place of business must be used only for business purposes and you must use it regularly. The business you do in your office could include bookkeeping, making phone calls, or any other office duties needed to run your operation.
  • There is no other location where you perform these tasks. This doesn't mean you can't do your books while relaxing on the sofa, just that you can't claim the sofa as part of your business for tax purposes.

If you do most of your work away from your home or office (for example, you're a plumber, roofer, or cab driver), your principal place of business is still where you keep your books. Even though the majority of your work is not done there, the physical address you use is your place of business. There are other ways to meet the home as the principal place of business, even if you do not earn most of your income at home. If you regularly use part of your home to meet with clients or customers, this may be sufficient, and it is even better if you do your bookkeeping or other paperwork there. However, if you use the same space for personal reasons, such as watching TV, chances are you’ll lose the deduction. If you do meet clients at your home, keep an appointment book that records the name, date, and time of each person you meet at your home, in the event the IRS gets suspicious.

You can also deduct expenses if you use a separate free-standing structure, like a backyard shed or garage. This doesn’t have to be the principal place of business to get the deduction, as long as the structure is used only for your business. So you can’t store your lawnmower in the same place you run your business.  

For a solo business owner, it is easier to determine what the principal place of business is than for an employee of a business. A home office will qualify as an employee’s principal place of business if it is used for the convenience of the employer, rather than the employee, and the employee cannot rent a part of his or her home to the employer and use that rented portion to perform services as an employee of that employer.

The great thing about using a home office as a principal place of business is that these individuals can deduct a portion of their mortgage, utilities, property taxes, and other related expenses. It is worth considering dedicating a portion of your home as a home office to reap the benefits of this deductible, particularly if you are a business owner.

Common Mistakes When Defining the Principal Place of Business

Business owners frequently misunderstand what qualifies as their principal place of business. Some mistakenly use a P.O. box or mailing service, which the IRS and most state agencies don’t accept as a physical business address. Others may claim a space that’s occasionally used for work but also serves personal functions, which can invalidate tax deductions.

Other common errors include:

  • Listing multiple principal places of business on separate filings.
  • Using a registered agent’s address instead of the location where management occurs.
  • Failing to update the principal business address when the headquarters moves.

To avoid issues, ensure your listed principal place of business aligns with where executives make key decisions and where records are maintained. If uncertain, consulting a business or tax attorney can help confirm compliance with IRS and state standards.

Frequently Asked Questions

  1. What determines a company’s principal place of business?
    It’s the main location where officers or owners manage, direct, and coordinate the company’s operations—the “nerve center.”
  2. Can a home office be a principal place of business?
    Yes. If you use part of your home exclusively and regularly for administrative or management activities, it can qualify under IRS rules.
  3. Can a business have more than one principal place of business?
    No. A business may have multiple offices or locations, but legally it has only one principal place of business.
  4. What if my business operates entirely online?
    You still need to list a physical business address—often a registered agent’s address or virtual office—to meet state and IRS requirements.
  5. How do I change my company’s principal place of business?
    File an amendment with your state’s Secretary of State and update the address on all federal, state, and tax documents to maintain compliance.

If you need help with principal place of business, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.