Interesting - sounds like things are worse than I thought. What does "physically present running your business" mean for a web service?

(Really curious here because my cofounder lives in NY.)

if you are living and working in a state that your company should be registered in that state

What if owners of a company don't live or work in the same state as each other? What if they don't even live in the US?

i honestly dont know about operating a us company from a foreign country but if you have two owners in two states you would have a primary state where you incorporate and the other state you would set up a foreign corp (basically says one company is working in a new state) additionally you could choose a third state like delaware then have a foreign corp in each of the other states

That's right - "foreign LLCs" seeking authority to do business in NY are subject to the same requirement: http://www.dos.ny.gov/corps/llcfaq.asp#pubreq