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Posted by JB on March 10, 2007, 1:04 am
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I'm a Pennsylvania CPA with a client in Washington State,
an LLC filing as a partnership. They are a consulting
company doing work in California and their client there
withheld 7% for a tax there, presumably because they are
a foreign company.
Can enyone enlighten me as to what forms have to be filed
in CA, if any to account for the 7% and should we have
received something from the client acknowledging the tax
withheld? Seems we have nothing to hang our hat on there.
To make matters worse, I called CA and was told yes they
have a tax on foreign entities, but they try to tax
everything, so it's something I really shouldn't get
started with. (Maybe it was his last day there. :))
Any help is greatly appreciated.
Jeff Berk
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Posted by Katie on March 11, 2007, 3:50 am
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> I'm a Pennsylvania CPA with a client in Washington State,
> an LLC filing as a partnership. They are a consulting
> company doing work in California and their client there
> withheld 7% for a tax there, presumably because they are
> a foreign company.
>
> Can enyone enlighten me as to what forms have to be filed
> in CA, if any to account for the 7% and should we have
> received something from the client acknowledging the tax
> withheld? Seems we have nothing to hang our hat on there.
>
> To make matters worse, I called CA and was told yes they
> have a tax on foreign entities, but they try to tax
> everything, so it's something I really shouldn't get
> started with. (Maybe it was his last day there. :))
Your client's LLC is doing business in California if it is
performing consulting services there. It must register with
the California Secretary of State. It is subject to the
annual $800 minimum tax and the LLC fee. (Note the
constitutionality of the LLC fee is the subject of pending
litigation. Until there is a published authoritative court
decision holding the fee to be unconstitutional, the fee
should be paid and a protective claim for refund filed.
Check the FTB web site, www.ftb.ca.gov, for instructions.)
The LLC must file Form 568 to report its activity and pay
the minimum tax and fee, and provide California K-1s to its
members.
The LLC's members are California taxpayers. The LLC must
apportion its income to California using the three-factor,
double-weighted sales apportionment formula, and each member
of the LLC owes tax to California on his or her distributive
share of California source income. Individual members will
file nonresident personal income tax returns on Form 540NR.
A composite nonresident return may be filed on behalf of
those members who agree to be included in such a return and
who have no other California source income.
California businesses are required to withhold 7% of
compensation paid to nonresident independent contractors
performing services in California. Here is a link to the
FTB publication explaining the nonresident withholding
program:
http://www.ftb.ca.gov/forms/misc/1023.pdf
Your client should have received Form 592-B, Nonresident
Withholding Tax Statement, for each member of the LLC,
dividing the withholding credit among the members in
accordance with their interests in the LLC. If only one
592-B was issued to the partnership, each member should
attach a copy of it to his or her California nonresident
personal income tax return along with a list of members and
their proportional interests, and claim the credit in
proportion to his or her interest in the LLC.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Tony Cox on March 11, 2007, 3:50 am
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> I'm a Pennsylvania CPA with a client in Washington State,
> an LLC filing as a partnership. They are a consulting
> company doing work in California and their client there
> withheld 7% for a tax there, presumably because they are
> a foreign company.
Actually, I think it's more because they *are not* a foreign
company. For corporations, anyway, CA payers are supposed to
withhold 7% from an out-of-state recipient that can't prove
they are registered as a foreign corporation. So it seems
either your clients didn't register, or their client
withheld the 7% by mistake. I'll assume the former.
> Can enyone enlighten me as to what forms have to be filed
> in CA, if any to account for the 7% and should we have
> received something from the client acknowledging the tax
> withheld? Seems we have nothing to hang our hat on there.
They'll presumably first need to register as a foreign LLC.
If they send employees out there to do any work, the LLC
will need to register with the CA EDD, & withhold on
employee salary. The workers too will have to file and pay
CA income tax (on world-wide income, not just CA income) and
SDI. I think the de minimus exemption is a laughable 5 days.
It'll be interesting to see what happens to that 7%, since
to get it, your client would seem to have to admit to doing
business in CA without being registered. Perhaps it'd be
cheaper and less hassle to let CA simply keep the money &
hope they'll be satisfied with that? Seems to me there are
possible criminal sanctions here, especially if they were
sending employees to CA to "consult", but I'm no lawyer (or
a CPA for that matter).
> To make matters worse, I called CA and was told yes they
> have a tax on foreign entities, but they try to tax
> everything, so it's something I really shouldn't get
> started with. (Maybe it was his last day there. :))
The guy you spoke to gave you sensible, but probably
invalid, advice! He was certainly right when he told you
that they'll try to tax everything, so I hope you gave a
false name. Telling you not to get into it is most likely
illegal. But in general, unless your clients plan on doing
lots of business in CA, its probably more hassle than it's
worth dealing with their complex and draconian FTB and EDD
regulations, and avoiding their inefficient and cynical
agents.
If your clients do register, remind them to "deregister"
when they've finished. CA continues to assess foreign entity
minimum franchise taxes even if you're no longer doing
business there, and are not shy to let these taxes
accumulate without telling you until (with penalty and
interest) they are quite substantial.
Katie will no doubt give you a more authoritative response.
Anyone in CPA-land had clients who took the 7% hit in lieu
of filing? How did it turn out?
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by JB on March 12, 2007, 4:34 am
Please log in for more thread options Katie and Tony,
Thanks for your help and direction. Glad I'm on the right
coast. If I can ever help out in PA, be glad to.
Jeff Berk
Jenkintown, PA
215-886-8700
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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