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California LLC Tax Help?

Does a Delaware LLC registered to do business in Rhode Island owe California tax on income from CA clients?

  • Delaware LLC, headquartered and registered to do business in Rhode Island, with 100 marketing-services clients spread evenly nationwide. Needs to hire a star employee who lives in California and works for the LLC remotely. Should the LLC also register to do business in California to be able to hire the employee (as an emp, not a contractor)? In so doing, does the 20% of the LLC's nationwide income that happens to come from California clients, become subject to California franchise tax?

  • Answer:

    Yes having an employee in CA definitely subjects you to CA taxes.  You need to register as a foreign entity and file franchise and income tax returns with the state. NOTE: you will also need to register to pay CA employment taxes for the CA based employee and depending on what you sell, you may also need to obtain a seller's permit from the http://www.boe.ca.gov/.

Wray Rives at Quora Visit the source

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Once you have a California-based employee who earns at least $100 in wages during a calendar quarter, you will have to register with the Employment Development Department and start paying payroll taxes to the state.   Beyond that, if you pay said employee more than $50,000, or more than 25% of the total compensation that your company pays employees (whichever is smaller), and the employee performs his services in California, then you will be considered to be "doing business" in California per the Revenue and Taxation Code - see https://www.ftb.ca.gov/businesses/Section_23101.shtml. And if your LLC is being treated as a corporation, then yes, you will be responsible for California franchise tax. See https://www.ftb.ca.gov/forms/misc/1083.pdf.

Mike Emeigh

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