You can incorporate in any state if you meet the basic requirements of that state. However,all states require you to have a registered agent present in the state to accept service of process and many states require you to have a business office presence in that state.

You can contract for registered agent services and do not need to have a physical office presence unless your state requires this. If a physical office presence is required, you can in most cases purchase this from a registered agent service as well.

In cases where your business is confined within the state where you are located, it usually makes most sense to incorporate within that state. This is the case for most local service businesses who do business locally. You still can incorporate in another state if you meet the requirements of that state, but you would need to register to do business in your home state anyway, so in most cases incorporation in another state will not derive significant benefits.

If however you derive income nationwide or worldwide; for example in the case of an Internet business, there may be some benefit to incorporating in one of the common "corporation friendly" states such as Nevada, Delaware, Wyoming, Florida, etc.

The primary reasons for selecting one of these states is that they generally have a streamlined, corporation friendly corporations law and process. Additionally, these states so not have state income taxes so there could be state income tax benefits if income is kept within that state. Consult your tax advisor regarding these issues.