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