Confusion on CA minimum tax laws imposed on LLCs... help! (lawsuit, money)

[Plantweed]

I work full time here in NY, but have a small, one-man design business on the side, for which I have an LLC (mainly so I can write off expenses). I'm moving to CA soon, and I am bummed at what looks like an $800 annual minimum charge just to have an LLC. Is it possible for me just to keep the NY tax ID, and live and work in CA?

[midnightfapper]

Originally Posted by youngmoney

Why does the government need $800 from every business? As a business owner myself (out-of-state), i don't know many business owners that care for feeding the hand of a business bureau. Who knows what that money is used for? I know as a business owner I do not incur $800 in expenses for the government in any department.

We are hit with fees to incorporate, yearly fees, change of name fees, change of agent fees, and so on and so forth... So where is this $800/yr going to... welfare?

Then we are punished by the amount of gross reciepts? ... why? Is this for redistribution of wealth?

it's going straight into the coffers of politicians, their cronies, etc. the system is so disgustingly broken in california it's not even funny.

i had some issues with an old llc years ago, it was virtually impossible to get in contact with anyone at the state for help. no phone number, writing to them gets no reply, etc. it was an absolute nightmare, i literally tried for weeks to get a single person to help.

i finally tracked down some sleepy little office in some mid-rise downtown with zero people inside. it was somehow related to the secretary of state.

the woman behind the counter (who likely had an iq no higher than the room temperature) seemed startled to have a visitor. she was just sort of staring off into space before i showed up, the place was eerily quiet.

i commented on how the place wasn't busy, how it's insane for a government office to not be overloaded, etc. she said very few people show up there.

get this: her job was to collect letters that are dropped off at the counter and mail them to the secretary of state. doesn't give advice, doesn't help anyone. not even a receipt that you were there.

essentially there's no difference from showing up there or dropping the documents off at at usps collection box.

my money says that old broad has been milking the system for decades, without a doubt receiving an extremely lavish salary with full benefits/pension. probably deals 5-10 people a day for a minute or two a piece.

it sounds like something out of a television comedy sketch, the sad thing was it was real.

contrast that to the state of nevada, where the fees are 1/10th of california, they answer their phones immediately and get back to you in a couple hours via email (in plain english and friendly too, nevada has great customer service).

california is the new detroit.

[midnightfapper]

Originally Posted by Plantweed

I work full time here in NY, but have a small, one-man design business on the side, for which I have an LLC (mainly so I can write off expenses). I'm moving to CA soon, and I am bummed at what looks like an $800 annual minimum charge just to have an LLC. Is it possible for me just to keep the NY tax ID, and live and work in CA?

the new york llc needs to be registered in the state of california and will be subject to all the same minimum tax ($800 off the bat each year plus gross receipts fee).

[FRUSTRATEDCPA]

The problem comes into play where you have an llc that is registered in DE or NV but invests in random hedge funds. These hedge funds often do business in all states. So your llc received a K-1 with obscure passive CA sourced income - lets say $25. This llc is then subject to the CA minimum $800 franchise tax. There is no limitation to filing. There are no nexus requirements. So then lets assume the members invested in this llc, are other llcs. So now they are subject to the $800 minimum filing fee without being registered in CA, without having presence, without having direct nexus. So now additional "double" / "triple" taxation on the same GROSSLY IMMATERIAL income! What if its a loss ?!?!?!? I am generating a loss from an obscure investment, and now all tiers of my llc are subject to the same $800 minimum filing fee! THIS IS REDICULOUS !!!! ABSOLUTELY REDICULOUS !!!

[Myndex]

OMG there is SO MUCH bad information in this thread I had to join this site and reply. Almost no one that replied to the OP is correct, with the exception of the one person who identified as a CPA.

1) All LLCs in California are subject to an annual tax of $800. This tax is due every year on the 15th day of the fourth month of the LLCs fiscal year. If your fiscal year is a calendar year, then it's April 15. If your fiscal year starts June 1, then it's Sept. 15th.

2) It does not matter if you are formed in California, or you are an out of state LLC doing business IN California, you have to be registered with the Secretary of State, and you have to pay the $800 annual tax.

3) It is NEVER prorated. If you start you business December 1, and choose calendar year for your tax year, you owe $800 for that one month, and then 800 again for the next twelve months.

4) The tax is due every year, even if you lost money or made no money. If you made 10 million, you still owe the same $800 LLC tax, but the PASS THROUGH income taxes will be different of course. There is a SEPARATE LLC fee that is graduated. The fee is $0 under 250,000 in total income, and as high as $11,790 if total income is over 5 million.


Some specific responses:

Originally Posted by BennyPhoenix

You are either misinformed or getting bad info.
There is no state business tax in calif for LLCs. Business taxes are local, that is, cities impose them, not the state.
The $800 fee you are talking about is to register in calif as an LLC.

WRONG. The $800 tax is a tax paid to the FTB. This is the LLC business tax. Corporations also have a business tax. Sole proprietorships and general partnerships that are NOT LLC do not have a state business tax.

The registration fee for an LLC is $70.

Local city/county business taxes and fees are IN ADDITION to state taxes and fees.

An LLC and a CORPORATION are STATE LEVEL entities. A sole proprietorship and a general partnership are LOCAL entities.

Originally Posted by LASam

Couldn't you just get a PO Box in the state of Delaware and register an LLC there... I believe that state is very business friendly.

You can not do business solely through a POBox. If you set up a corporation or LLC in DE or NV, but you don't live in those states, you MUST use a state agent for service.

Regardless, if you have an LLC or corp in another state, but you are "conducting business" in California, you still must register as a "foreign" entity and pay the $800.

Originally Posted by madmols

I also have a question similar to thepinksquid's. I have decided to dissolve my business and had filed for an LLC 1/6/12. They have told me I can cancel the LLC, however, if I did ANY business after it was filed, I am on the hook for the LLC $800 fee. I barely made $1000 gross (in 2 months)since the filing and thus decided it was not a good business venture afterall. However, it is something. I have to file that with the IRS. Is there anyway out of this $800?

No, and this is one reason that it is often better to start as a simple sole proprietorship at first to test the venture, before setting up the LLC.

Originally Posted by futbol

I'm looking to setup an LLC to do my software work within. I won't make much money, if any. It is for work on the side of my regular job. I plan to grow it into something that might become full-time.

Nevada has been known as one of the states that is very friendly to business (corporations, LLCs, etc.), but they have recently risen their fees, both annual and initial setup. I'm now looking at setting up possibly in Wyoming, which is cheaper, and paying a company to keep a mailing address there.

I understand that if I'm working in California, and thus making money in California, I must pay taxes here. Does that mean I also have to have an LLC setup here?

You do not "need" and LLC to conduct a business, especially if you are a sole proprietor. You need an LLC if you want to limit your liability from lawsuits or creditors.

If you set up an LLC in any state other than your own, you MUST pay for a state agent to accept mail and service for you. If you set up the LLC in your home state you SHOULD still pay a local state agent for service purposes.

Regardless, if you use an LLC or Corp and you "conduct business" in state, you must file and pay the $800.

Originally Posted by silentbob20059

You don't have to pay the minimum tax the first year, you just have to pay the normal tax rate.

https://www.ftb.ca.gov/forms/misc/1060.pdf

There may also be exemptions if you're on active military duty for the taxable year.

I was seriously so upset the first time I found out about min $800 tax. This made me a lot happier.

WRONG. That applies to corporations ONLY, the first year exemption does NOT apply to LLCs.

Originally Posted by DMenscha

I could have a Delaware LLC (and even serial LLC's) and do business in CA. Tons of big businesses are incorporated in DE. Large yacht owners often incorporate or use DE LLC's to "homeport" their boats. On documented vessels you may see a DE port listed as their home port.

Not necessarily true, and It depends on the definition of "doing business",and if you have a member manager living in California. Generally If you have a Delaware LLC, you can't "conduct business" in California without registering and paying the $800 tax.

Originally Posted by Plantweed

I work full time here in NY, but have a small, one-man design business on the side, for which I have an LLC (mainly so I can write off expenses). I'm moving to CA soon, and I am bummed at what looks like an $800 annual minimum charge just to have an LLC. Is it possible for me just to keep the NY tax ID, and live and work in CA?

Not legally, no. If you live and perform work in California, you'd still have to register your NY LLC and still pay the $800.

Originally Posted by midnightfapper

it's going straight into the coffers of politicians, their cronies, etc. the system is so disgustingly broken in california it's not even funny.

i had some issues with an old llc years ago, it was virtually impossible to get in contact with anyone at the state for help. no phone number, writing to them gets no reply, etc. it was an absolute nightmare, i literally tried for weeks to get a single person to help.

WRONG. It goes into the state general fund, and the SOS has a website, phone numbers, and mail contacts.

http://www.sos.ca.gov/business/be/contact.htm

Originally Posted by FRUSTRATEDCPA

The problem comes into play where you have an llc that is registered in DE or NV but invests in random hedge funds. These hedge funds often do business in all states. So your llc received a K-1 with obscure passive CA sourced income - lets say $25. This llc is then subject to the CA minimum $800 franchise tax. There is no limitation to filing. There are no nexus requirements. So then lets assume the members invested in this llc, are other llcs. So now they are subject to the $800 minimum filing fee without being registered in CA, without having presence, without having direct nexus. So now additional "double" / "triple" taxation on the same GROSSLY IMMATERIAL income! What if its a loss ?!?!?!? I am generating a loss from an obscure investment, and now all tiers of my llc are subject to the same $800 minimum filing fee! THIS IS REDICULOUS !!!! ABSOLUTELY REDICULOUS !!!

WRONG. Only the foreign LLC actually doing business in California is required to register and pay the $800 tax.

If a foreign LLC operates in California, is registered, and paying the tax, and the MEMBERS of the foreign LLC are also foreign LLCs, the member LLCs do NOT have to register and pay the tax provided that they themselves are not operating in California.

------------


I hope that clarifies things in this thread. Apologies if there are spelling issues as I typed this on my iPad.

[armourereric]

I am now about to experience this. For those who decry to lack of research, in the last 48 hours, I have spoken to 3 attorneys, a member of the San Diego city DA's office, a SD based CPA and 2 SBA small business advisors who ALL informed me (I know incorrectly) that this either did not apply to LLC's with gross receipts under 250K or did not apply the first year.

I wonder, and I will be acting on this comment tonight, how many have contacted their state Assembly person or state Senator to ask what they were doing to repeal this obviously regressive, must have been initiated by Republicans, anti-Democrat party platform tax. I mean, this tax goes against everything the state Dem Party claims to stand for.

[armourereric]

An email to State Senator Hueso and Assemblyman Jones has been sent.

[armourereric]

FWIW, I did get what I would figure to be an automated reply from Sen Hueso that as his monthy/quarterly newsletter. In this newsletter is a request to recommend legislation. So what should we contact our reps to suggest? $50 min, $200 min? 0.5% up to 160K gross receipts? What say you all?

[jw2]

Originally Posted by armourereric

I am now about to experience this. For those who decry to lack of research, in the last 48 hours, I have spoken to 3 attorneys, a member of the San Diego city DA's office, a SD based CPA and 2 SBA small business advisors who ALL informed me (I know incorrectly) that this either did not apply to LLC's with gross receipts under 250K or did not apply the first year.

I wonder, and I will be acting on this comment tonight, how many have contacted their state Assembly person or state Senator to ask what they were doing to repeal this obviously regressive, must have been initiated by Republicans, anti-Democrat party platform tax. I mean, this tax goes against everything the state Dem Party claims to stand for.

I don't think the Democrats go so far to denounce any tax. They like them all. They prefer to single out specific classes of people but they will not turn down a tax that is in front of them

This specific tax was designed to be revenue neutral. The idea is California would not make any money, the costs represent the costs they incur processing business applications and related items. In this case, that is all California employee costs. It was supposed to represent the loaded costs of employee time. Of course, the revenue goes into the general fund and spent on whatever and CA taxpayers are still on the hook for the overhead but they hope you overlook that.

OK, the real question, which Republican wrote this "regressive, must have been initiated by Republicans, anti-Democrat party platform tax"? I will give you a hint, he is a democrat. AB 1546 - Calderon

Want to know what else he did? SB 1959 which opened the door for Pay Day lenders in California. Democrats hate that too right?

Charles Calderon If the name sounds familiar, you might be thinking of his brother Ron Calderon You know, the one the FBI busted for taking bribes

I have a suggestion for you, rather than just voting Democrat with the false impression that all Democrat are good and all Republicans are bad, vote for the right candidate. Both parties have their winners and losers. But I do give you props, that was a pretty good rant, ya know good in a way that it was all unfounded

[armourereric]

You do know that I am very much a Republican and was being sarcastic, how many liberals do we see here blasting regressive taxes, well here is a regressive tax to blast.............oh, wait, this one is for the children or something!