California C-Corp Minumum Tax Liability

[enluminari]

What is the name of your state? California - at least for now

I live and work in San Francisco but considered a Delaware corporation because of the California $800 minimum FTB tax liability because I knew I would be operating at a loss for the first 2-3 years.

But since I would have to hire a Delaware agent for $200 a year and since I live in California and would therefore be required (?) to file with the Sec of State as a foreign corporation doing business in California and I'd be responsible for the $800 minimum tax anyway... I decided it would actually be cheaper to incorporate in California.

Is that about right? Any problems with the above?

My question is: In this age of the Internet, how exactly does the California FTB define "doing business"?

I mean, I live in California and am the primary officer for the corporation, so does that alone qualify? Because all of my intellectual property and websites exist on a server farm in Atlanta, and my customers are from everywhere.

So would it be in my best interest now or in the future to reorganize the corporation in Delaware?

Thanks.

 

[enluminari]

bump ^

come on, no one knows?

 

[whn]

me 2

trying to figure out where to INC at

heard Nevada is good too but im in cali

intersting that its cheaper to inc here instead

 

[enluminari]

bump ^

any insight appreciated

 

[enluminari]

Don't bump the threads. It won't help you get your questions answered and may, in fact, get them deleted.

The name of this forum is FreeAdvice. We are not a trained set of lawyers and accountants paid to wait for you posts, be patient!

The answer is that your Delaware dodge isn't probably going to get you around the minimum franchise tax.

"Doing business" within California is defined as actively engaging in any transaction for the purpose of financial or pecuniary gain or profit. A corporation generally will be doing business in California (and thus subject to the franchise tax) by entering into various contracts in California, hiring California employees and performing other substantive business activities in California.

Thanks, FlyingRon.

only bumped the thread because it disappears after 2 days otherwise. I was just afraid no one would see it.

Anyway, it's still a little unclear to me. I'm only developing websites which are hosted in Atlanta, not in California. And the contract on the server (and bandwidth, etc) is with a company located in Canada. I don't have anything else that might be considered a contract, I don't hire employees, I don't rent an office, and the users who pay me could be from anywhere in the US.

I'm not trying to dodge taxes in any way, but I also don't want to pay more than I legally am required to.

The only thing I can think of that might qualify as "doing business" in California is the fact that I live here and am the only officer.

 

[tranquility]

The reason you question is not answered by people who know, is that it is a complex question. Even though the "answer" will be the name of a state, there is no where near enough information to hazard a guess. You need to sit down and speak with an attorney and allow him to question you and then refine his questions based on your answers. If there was one best state for everyone, why would anyone incorporate in any other state? (Unless they're lazy.)

 

[enluminari]

The reason your question is not answered by people who know, is that it is a complex question. Even though the "answer" will be the name of a state, there is no where near enough information to hazard a guess. You need to sit down and speak with an attorney and allow him to question you and then refine his questions based on your answers. If there was one best state for everyone, why would anyone incorporate in any other state? (Unless they're lazy.)

Thanks tranquility.

I suppose taxes are never a simple subject. Perhaps I should just speak to someone at the California FTB. Of course their answer may be biased, but it's worth a shot. I'll also see if I can talk to an attorney to get a second opinion.

I think 60% of the Fortune 500 are incorporated in DE. Seems like a pretty good state for most companies. I've already given the reasoning behind me decision to incorporate in California, but now I am wondering if that reasoning is flawed.

 

[enluminari]

Answer

If anyone is interested, I got a call from the California FTB and they said that yes, if even any company officers just LIVE in california (who are therefore making business decisions) then the company is required to file and pay California taxes, including the $800 minimum tax even while operating at a loss. That seems fair, not.

So, I suppose if you're living in California and want to start a small business organization as a c-corp, it'll actually be cheaper to do it in CA than in DE. Go figure.

 

[tranquility]

That is not a correct statement of the law. I don't have enough facts to determine if you are required to pay California taxes, but the fact that one officer lives in the state does not give nexus to the state to collect against the entire corporation.

 

[enluminari]

That is not a correct statement of the law. I don't have enough facts to determine if you are required to pay California taxes, but the fact that one officer lives in the state does not give nexus to the state to collect against the entire corporation.

Really? I would be very happy to be wrong about that, but that is what the person from the California FTB told me. She said, if ANY business decisions are being made in California, then the company is required (registered or not) to file and pay California taxes (8.84% for corporations or $800, whichever is greater). I personally think that's bogus, but my opinion doesn't count.

Here are some facts:

I'm a one-man c-corp. I live in California. I do all the work myself, I don't rent any office space, hire or pay any employees anywhere, and I don't have any contracts with anyone in California. I just do the work on my PC at home and upload it to a server which is outside of California. The people who subscribe to my content are from all over the US.

I incorporated for liability reasons (I do maintain corporate protocol as required) and for what I thought were going to be tax benefits (c-corps are taxed at 15%, whereas my personal taxes are in a higher bracket), reinvesting the revenue back into the corporation. I don't currently pay myself any dividends.

I did incorporate in California (see my original post) but if it will save me paying the $800 minimum tax while I operate at a loss for the first few years, I would rather reorganize in Delaware and pay $200 for an agent there.

Any advice appreciated.

 

[tranquility]

I live in California. I do all the work myself, I don't rent any office space, hire or pay any employees anywhere, and I don't have any contracts with anyone in California. I just do the work on my PC at home and upload it to a server which is outside of California.

This would give nexus and would fall under the California requirements to file and pay no matter where you incorporated.