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Are You Inadvertently Doing Business In California?



LLC Members And Partners – The Franchise Tax Board Says You Are Doing Business In California…  Are You?

Effective January 1, 2011, California defines “doing business” in the state under Cal. Rev. & Tax Cd. §23101 as any active business having any of the following attributes:

•  Organized or located in California;
•  California sales exceeding the lesser of $500,000 or 25% of total sales;
•  Property  located in California exceeding the lesser of $50,000 or 25% of total property; or
•  California wages exceeding the lesser of $50,000 or 25% of total wages paid.

Sales are attributable to California if property is delivered within the state or is shipped from the state and the purchaser is the United States government or if no other state taxes the sale.

For service sold on or after January 1, 2013, California lays claim if:

•  The purchaser of the service receives benefit of the services within California such as the repair of a computer for a user in that state;
•  Sales of securities, insurance, or other intangible assets to California residents;
•  Sales, leases, rental, or licensing of California real estate or other property.

 See Cal. Rev. & Tax Cd. §25136.

Prior to January 1, 2013, service sales are sourced where the service was provided – if you repaired the computer in Utah for a California user, the sale was a Utah sale and not a California sale.

The problem is, partners, members, and shareholders must include their allocable portion of the partnership’s, LLC’s, or S-corporation’s sales, wages and assets in the above ratios.  If these owners are LLCs, limited partnerships, or S-corporations themselves and meet the thresholds, they will have to register with the Secretary of State of California and pay at least the minimum tax of $800.  Failure to register will cost you at least $2,000 in penalties.

Fortunately, individuals, general partnerships, and trusts do not have to register or pay a minimum tax.  They do have to pay taxes on their net apportioned income though.

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Beginning her career in accounting in 1985, Barbara established her write up and taxation firm which later merged with Carle Dahlstedt forming Dahlstedt & Jankowski, PC. Many years were spent as a controller in a manufacturing company, a tax specialist in a payroll company, a business manager for entertainers, and a senior tax manager in small local and large multi-office firms. Barbara has vast experience with complex tax returns for high wealth individuals, foreign holdings, pass-through entities, closely held corporations, entity selection, local and state taxes, multi-state returns, payroll and supervision in both public accounting and manufacturing environments. She trains and supervises staff in foreign countries and across the nation. With her extensive background, she has the ability to see multiple angles to complex financial issues and implement solutions accordingly.

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