Question on CA LLC

[DTS]

I am unclear about the $800 Annual Franchise fee in this situation:

Client filed Articles w/SOS in CA a few months ago, but has purchased property in another state and will open his LLC there instead. He is going to file for cancellation of this LLC in CA this coming week. No business activity has started in CA, yet.

I know the fee is a prepayment, but does the annual $800 fee still need to be paid in this situation? To me, section Q in the instructions for Form 568 was very vague about this.

Thanks for any insight on this.
Dennis

[S T]

Calif LLC

Here's the link to FTB and LLC tax clearance. http://www.ftb.ca.gov/individuals/faq/taxClearance.html Also the link to Sec of State http://www.ss.ca.gov/business/llc/llc_faq.htm

New law eliminating the tax clearance certificate effective 9/29/06, see under specific provisions, which might apply. New instructions are not available yet online, but there is a phone number provided.

Sandy

[jainen]

California is pretty

California is pretty aggressive about its minimum tax, so don't be casual about this. Keep track of the papers and the timeline. If the business owner is a California resident, has California customers, or receives bookkeeping or other business services in California they may demand he pay the money anyway.

[DTS]

Llc

Sandy and Jainen,

Thanks for the links and the advice. Today or tomorrow, I plan to call the number that was in the link and see what they think. I'm inclined to think they will say "yes" because as you say, they are very aggressive about "their" money. I am hopeful they will not be so inclined as no business activity has begun.

Thanks, again.
Dennis

[jainen]

some business activity

>>no business activity has begun<<

Aside from the fact that the minimum tax isn't related to whether a California company actually conducts any business, they may have a different opinion than you as to whether there has indeed been some business activity.

[DTS]

Llc

Jainen,

Can you point me in a direction so I can look at whether or not the FTB will consider a business is being conducted here? The reason I ask is that all this LLC has done is apply to the SOS and received the SOS number. That's it.

If they consider the application and the issuance of the SOS number "doing business" then they may be stuck!

Thanks,
Dennis

[jainen]

The problem is

The problem is that it's not an income tax, it's a "franchise" tax for the priviledge of being registered as a California business. It hits failed businesses that are not able to dissolve because of lingering accounting or legal issues, and it hits startups before they are ready to open the doors. The application has recently softened a little, I believe, but I am not up to snuff on the topic since I only do 1040 returns.

You can start just by waiting for the letter, and then responding to that. Generally, the FTB agents are knowledgeable and honest to a degree that shames the IRS, so you can talk frankly with them (just don't give them anything they can use against you).

Unfortunately (and FTB knows this too) $800 is less than the representation fees to go very far in appeals.

[DTS]

Annual Fee update

Jainen,

I just got off the phone with the FTB and discussed the issue with a gal there. I asked her what constituted "the start of doing business" and she told me the date the SOS number is issued, the 4-1/2 month clock starts ticking (not in those words). So, my clients will have to pay this.

Thanks to you and Sandy for the help. I appreciate it.

Dennis

[jainen]

consolation

If it's any consolation, your client is not alone. That $800 minimum tax for the privilege of doing business (even if you don't actually do any business) remains one of the most unknown hazards of the whole LLC thing. Fortunately we are starting to get a few ways around it, but they require unpleasant tasks such as planning ahead.

[veritas]

California Franchsie fee

This was covered in my continuing ed class this week. How it came up I don't recall but maybe you can get your money back.

http://www.nysscpa.org/fyi/california_fee.htm

[DTS]

Protective claim

Veritas,

Thanks for posting the site. I will follow the instructions and do as it states. I read something along the line of some sort of challenge to this fee some months ago and thought to myself "good luck with that". My thought may have been hasty!

Thanks, again.
Dennis