Principal Place of Business: A Business's Primary Location

What Is a Principal Place of Business?

A company's principal place of business is the primary location where its business is performed. This is generally where the business's books and records are kept and is often where the head of the firm and other senior management personnel are located.

Corporations are usually required to report their principal place of business to the US Secretary of State.

Understanding Principal Places of Business

The principal place of business plays a role not only in taxes but also in litigation. Where a company is based can affect legal jurisdiction and determine which court will hear legal matters involving the company.

If a plaintiff lives in a different state than that of a defendant who happens to be a business, and the plaintiff brings a lawsuit against the defendant, then there is a phenomenon known as "diversity of citizenship," which could determine the exact courthouses in which the lawsuit may be filed.

What Principal Place of Business Means to Courts

The United States Supreme Court has defined the principal place of business as the place where a corporation's officers direct, control, and coordinate the company's activities. This is also described as the company's nerve center, where the primary functions and decision-making activities of the enterprise occur. Under normal circumstances, this is also the location where the headquarters of a company is situated.

However, this might not be the case if the headquarters is largely an office that's strictly dedicated to board meetings for officers and directors of the company, while a remote location serves as the epicenter for control, direction, and coordination of the company's operations.

Depending on the type of business, transactions and operations that are integral to the company may be conducted at the principal place of business. For example, a single-store retailer's principal place of business would be the store where they sell products, train and manage staff, maintain inventory, and run an office to oversee the operation. A dentist could list their office where they perform exams and treat patients as their principal place of business. The garage where a mechanic services vehicles and maintains tools and parts also qualifies for this designation.

One's Home as Principal Place of Business

There are several criteria that have to be met for taxpayers to say their home is their place of business and thus deduct expenses. According to the IRS, you must use part of your home as one of the following:

1. Exclusively on a regular basis as your principal place of business for your trade or business
2. Exclusively on a regular basis as a place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business
3. A separate structure that's not attached to your home used exclusively on a regular basis in connection with your trade or business
4. On a regular basis for storage of inventory or product samples used in your trade or business of selling products at retail or wholesale
5. For rental use
6. As a daycare facility

For solo practitioners who use part of their homes as their principal place of business, certain tax deductions are permitted. This can include portions of rent or mortgage payments and a percentage of utility costs that reflect the scope of the area dedicated to business usage.

Correction—April 11, 2023: This article has been edited to list the correct IRS requirements to deduct expenses for business use of a home.