source of income question and place of business

tigerdial

I am  a resident of California planning a single member LLC. My business will be online. Source of income will be from outside USA. Business activities will be outside USA.
I will be using my California address for correspondence and California bank account to receive revenue.
Am I considered to be doing business in CA, thus requiring registration and payment of 800 dollar anuual franchise tax?
 
Since source of income will be outside USA, will california income be considered 0 for calculating the tax?
 

robertj

Tiger,
If you live in California - your income is taxed by California.
You you are the only person in the company - it will be "judged" by California as operating there.

tigerdial

Thanks Robert.
 
Yes, the profit will go to my personal tax return, since it will be single member LLC and I will pay CA taxes.
 
But, what about calculation of frachise tax?  Since source of income and business activities will be outside USA, will it be considered that the LLC has CA income of 0? and thus pay only 800 dollar minimum.
I came across this lawsuit  http://www.ftb.ca.gov/law/notices/2008/2008_2.pdf
From this, it seems that franchise tax will be calculated only on CA income and not on worldwide income

robertj

For an single member LLC - all profits will be passed through to you.
Since you live in California - you pay income tax on that.

tigerdial

what about the franchise tax?

robertj

Tiger:
The Franchise Tax Board of California is the department that collects State income tax - which is what we`ve been discussing.
The Board of Equalization collects California state sales and use tax, as well as fuel, alcohol, and tobacco taxes and fees that provide revenue for state government and essential funding for counties, cities, and special districts robertj2008-6-8 14:48:25

tigerdial

ok, I believe there is a 800 dollar annual franchise tax(LLC tax), separate from the income tax at the year end. Both are collected by FTB.
This 800 dollar, I have to pay 3 months from incorporating my LLC.
Then, at the end of year, if  profit/revenue is higher than 250,000,  I have to pay more LLC tax.
However, since source of income is outside USA, will I need to pay the excess LLC tax or not?
That is my question.

robertj

The following form California Franchise tax board web siteaddresses your question.
An LLC pays an annual tax of $800, and may be subject to a fee based on total annual gross worldwide income. .
 Annual Fee
LLCs are also subject to an annual fee based on their total income. Total income is defined as the sum of worldwide gross income plus cost of goods sold (R&TC Section 24271). The LLC fee is due on the original due date of the return, which is the 15th day of the fourth month following the close of its taxable year. Use Form 568 Limited Liability Company Return of Income, to report income and the fee.

tigerdial

Thanks, Robert for all your help and patience.
 
yes, Calfornia used to tax companies based on wordlwide income.
but, based on this lawsuit

http://www.ftb.ca.gov/law/notices/2008/2008_2.pdf

they should now tax based on CA income only.
Let me know what you think.

robertj

That ruling is based upon a situation involving a foreign entity that did NO business in California.
 

tigerdial

It should apply to me also.My business is also entirely outside CA. In fact, it is outside USA.

robertj

I can refer you to an excellent attorney who can discuss the specifics - but I see 2 differences between your situation and theirs:
1. You are a resident of California
2. You are saying you intend to form a California LLC
If you expect your single member LLC to have more than $250K in revenues - you may want to form a corporation. That will introduce a different set of considerations -however.
 

tigerdial

I think what matters is "whether there is income attributable to business inside CA".
By being a resident of CA, it does not necessarily make any business in CA.
 
Also, regrading point 2), being a foreign or domestic CA LLC should not change the tax owed. In both cases, you have to pay the 800 dollar annual fee. Then, depending on how much business you have in CA, you pay additional fees.

robertj

As I said in my previous message, I can recommend an excellent attorney.
I suggest you consult with one and get a "letter of opinion" from them before you act on your assumptions.
A small investment now could save you a bundle down the road.robertj2008-6-9 1:13:5