Wednesday, April 18, 2012

California Franchise Tax Board

Several of our clients have in the past created Nevada limited liability companies (LLC’s) or Nevada limited partnerships (LP’s) with the intent of holding investment or vacation properties located in California.  Prior to 2011 the idea of a Nevada entity merely holding investment property in California would not have triggered any California taxes because the entity would not have been classified as “doing business” in California.  However, the Franchise Tax Board, which is California’s taxing authority, has imposed new rules on the taxation of entities conducting business in California. 

As of January 1, 2011, California changed the definition of “doing business” to include, among other things, any business entity who has real or tangible property in California where the value of that property exceeds the lesser of $50,000 or 25% of the taxpayer’s total real and tangible property.  This change will impact clients with LLC’s or LP’s that were formed merely to hold investments in California where the value of the assets in California now exceeds $50,000.  The business entity will now be subject to an annual $800 tax imposed by the Franchise Tax Board.  Please contact us or your tax preparer if you have questions about whether the fee will apply to you and to take steps to begin paying the fee.  Please call our office and set an appointment with an attorney to discuss the possibility of restructuring your entity to avoid the tax in the future.

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