State reporting re: member-managed LLC

Posted by NoClue on September 24, 2009, 2:36 am

Please log in for more thread options

Let's say a California LLC buys a rental property in CA. The
property is managed by a management company.

The LLC is owned by 3 non-resident members. None of the members owned
more than 49% of the LLC. The LLC is member-managed. The 3 members
live in NY, VA and NJ.

I would assume the LLC would file the Federal and CA tax returns.
But is the LLC required to file any income OR information return in
NY, VA or NJ because decisions regarding the LLC are being made by
members living in those states?

TIA

--
<< ------------------------------------------------------- >>
<< 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 (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by removeps-groups@yahoo.com on September 24, 2009, 11:29 am

Please log in for more thread options

> Let's say a California LLC buys a rental property in CA. The

> property is managed by a management company.

> The LLC is owned by 3 non-resident members. None of the members owned

> more than 49% of the LLC. The LLC is member-managed. The 3 members

> live in NY, VA and NJ.

> I would assume the LLC would file the Federal and CA tax returns.

> But is the LLC required to file any income OR information return in

> NY, VA or NJ because decisions regarding the LLC are being made by

> members living in those states?

Disclaimer: I'm a bit clueless about state issues, but lemme try.
Yes, the LLC would have to file federal and California returns. If it
is taxed as a C corporation, then federal 1120 and state 100. If
taxed an S corporation then federal 1120-S and state 100-S. If taxed
as a partnership then federal 1065 and state 568. C and S
corporations pay the larger of: (a) 8.84% or 1.5% of profits, or (b)
$800, though the $800 minimum tax is waived for the first year of a C
or S corporation. For LLC, there is the $800 minimum tax plus the tax/
free based on profits.

The owners of the LLC will have to file CA tax returns to report their
CA source income. See the latest bullet point in
http://www.ftb.ca.gov/businesses/bus_structures/LLcompany.shtml. This
is on form 540-NR. They pay CA tax only on their CA source income,
which is probably only the LLC income, though they will be taxed at a
higher rate on this income because of their income from other states
-- ie. their federal AGI wil be higher, so CA will tax the 20k they
make at a higher rate than a CA resident who makes just 20k a year.

Because the LLC members operate in other states -- that is, they make
business decisions while residing in those states -- they will also
have to file returns in these other states. However, I'm not aware
that other states tax LLC's that are partnerships and S corporations.
They will also have to file information returns in all 4 states, which
itself carries a fee. In California this is form SI-200C and the fee
is $25. You'll need a registered agent in California.

--
<< ------------------------------------------------------- >>
<< 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 (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by NoClue on September 25, 2009, 10:07 am

Please log in for more thread options

On Sep 24, 11:29 am, "removeps-gro...@yahoo.com" <removeps-
gro...@yahoo.com> wrote:

> > Let's say a California LLC buys a rental property in CA. The

> > property is managed by a management company.

> > The LLC is owned by 3 non-resident members. None of the members owned

> > more than 49% of the LLC. The LLC is member-managed. The 3 members

> > live in NY, VA and NJ.

> > I would assume the LLC would file the Federal and CA tax returns.

> > But is the LLC required to file any income OR information return in

> > NY, VA or NJ because decisions regarding the LLC are being made by

> > members living in those states?

> Disclaimer: I'm a bit clueless about state issues, but lemme try.

> Yes, the LLC would have to file federal and California returns. If it

> is taxed as a C corporation, then federal 1120 and state 100. If

> taxed an S corporation then federal 1120-S and state 100-S. If taxed

> as a partnership then federal 1065 and state 568. C and S

> corporations pay the larger of: (a) 8.84% or 1.5% of profits, or (b)

> $800, though the $800 minimum tax is waived for the first year of a C

> or S corporation. For LLC, there is the $800 minimum tax plus the tax/

> free based on profits.

I assume the minimum tax is to CA only; and no min. Fed tax ? And
there is no CA minimum tax on the LLC if it is taxed as a partnership?

> The owners of the LLC will have to file CA tax returns to report their

> CA source income. See the latest bullet point

inhttp://www.ftb.ca.gov/businesses/bus_structures/LLcompany.shtml. This

> is on form 540-NR. They pay CA tax only on their CA source income,

> which is probably only the LLC income, though they will be taxed at a

> higher rate on this income because of their income from other states

> -- ie. their federal AGI wil be higher, so CA will tax the 20k they

> make at a higher rate than a CA resident who makes just 20k a year.

> Because the LLC members operate in other states -- that is, they make

> business decisions while residing in those states -- they will also

> have to file returns in these other states.

By "they will also have to file ...." do you mean the LLC or the
members?

If you mean the LLC, does it matter that none of the members own a
majority interest in the LLC? If doesn't matter, does it mean that
if only one of the non-resident member is appointed to make all day-to-
day management decision, then the LLC needs only to file returns in
that one state?

[Besides the day-to-day operating decisions, there will be
circumstances that require unaimous consent from all members -- e.g.
re/financing, sale, new member admission, etc.]

TIA

>However, I'm not aware

> that other states tax LLC's that are partnerships and S corporations.

> They will also have to file information returns in all 4 states, which

> itself carries a fee. In California this is form SI-200C and the fee

> is $25. You'll need a registered agent in California.

--
<< ------------------------------------------------------- >>
<< 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 (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by removeps-groups@yahoo.com on September 25, 2009, 1:06 pm

Please log in for more thread options

> On Sep 24, 11:29 am, "removeps-gro...@yahoo.com" <removeps-

> > Disclaimer: I'm a bit clueless about state issues, but lemme try.

> > Yes, the LLC would have to file federal and California returns. If it

> > is taxed as a C corporation, then federal 1120 and state 100. If

> > taxed an S corporation then federal 1120-S and state 100-S. If taxed

> > as a partnership then federal 1065 and state 568. C and S

> > corporations pay the larger of: (a) 8.84% or 1.5% of profits, or (b)

> > $800, though the $800 minimum tax is waived for the first year of a C

> > or S corporation. For LLC, there is the $800 minimum tax plus the tax/

> > free based on profits.

> I assume the minimum tax is to CA only; and no min. Fed tax ? And

> there is no CA minimum tax on the LLC if it is taxed as a partnership?

Yes, CA only. No minimum fed tax, and I don't think the other states
have a min tax either, though someone mentioned a K-1 tax for NJ. The
$800 minimum is there even if it is taxed as a partnership. And it's
worse. There's no first-year exemption from the minimum tax in this
case. In addition, the net tax is the $800 plus the graduated tax.
See page 5 of the instructions for 568.

http://www.ftb.ca.gov/forms/00_forms/00_568bk.pdf

If total annual income from The
Form 568, Side 1, line 1 is: fee is:
equal to or over – but not over –
$ 250,000 $ 499,999 $1,042
500,000 999,999 3,126
1,000,000 4,999,999 6,251
5,000,000 and over 9,377

So if the LLC makes profit of 260k, the tax is $800 + $1042 = $1842.

With S corps, the minimum tax for the first year is 1.5% of profits,
and for every other year is the larger of 1.5% of profits and $800.
If your S corp makes millions and millions of dollars in profits, then
an LLC will result in less tax. See http://www.nvinc.com/californiallc.htm.

> > The owners of the LLC will have to file CA tax returns to report their

> > CA source income. See the latest bullet point

inhttp://www.ftb.ca.gov/businesses/bus_structures/LLcompany.shtml. This

> > is on form 540-NR. They pay CA tax only on their CA source income,

> > which is probably only the LLC income, though they will be taxed at a

> > higher rate on this income because of their income from other states

> > -- ie. their federal AGI wil be higher, so CA will tax the 20k they

> > make at a higher rate than a CA resident who makes just 20k a year.

> > Because the LLC members operate in other states -- that is, they make

> > business decisions while residing in those states -- they will also

> > have to file returns in these other states.

> By "they will also have to file ...." do you mean the LLC or the

> members?

The LLC. In addition, I mentioned afterwards that the individual
members will have to file CA 540-NR returns. CA will tax the money
they make from the LLC, and their own state will, but their own state
will give them a credit for the tax paid to CA only on the LLC income.

> If you mean the LLC, does it matter that none of the members own a

> majority interest in the LLC? If doesn't matter, does it mean that

> if only one of the non-resident member is appointed to make all day-to-

> day management decision, then the LLC needs only to file returns in

> that one state?

Sorry no idea.

--
<< ------------------------------------------------------- >>
<< 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 (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Gene E. Utterback, EA, RFC, AB on September 25, 2009, 5:22 pm

Please log in for more thread options

> On Sep 24, 11:29 am, "removeps-gro...@yahoo.com" <removeps-

> gro...@yahoo.com> wrote:

SNIPPAGE

> I assume the minimum tax is to CA only; and no min. Fed tax ? And

> there is no CA minimum tax on the LLC if it is taxed as a partnership?

I believe this is correct. I know there is no minimum Fed tax. I know that
CA has a minimum fee and I think it is around $800.

>> The owners of the LLC will have to file CA tax returns to report their

>> CA source income. See the latest bullet point

>> inhttp://www.ftb.ca.gov/businesses/bus_structures/LLcompany.shtml. This

>> is on form 540-NR. They pay CA tax only on their CA source income,

>> which is probably only the LLC income, though they will be taxed at a

>> higher rate on this income because of their income from other states

>> -- ie. their federal AGI wil be higher, so CA will tax the 20k they

>> make at a higher rate than a CA resident who makes just 20k a year.

>> Because the LLC members operate in other states -- that is, they make

>> business decisions while residing in those states -- they will also

>> have to file returns in these other states.

> By "they will also have to file ...." do you mean the LLC or the

> members?

The individual members will have to file California Non Resident income tax
returns and pay tax to California on their California source income.

> If you mean the LLC, does it matter that none of the members own a

> majority interest in the LLC? If doesn't matter, does it mean that

> if only one of the non-resident member is appointed to make all day-to-

> day management decision, then the LLC needs only to file returns in

> that one state?

I did not mean the LLC.

But it matters not what percentage they own or how little it is. The ONLY
exception I can think of that MIGHT apply would be if the distributive share
of income from the California rental was below California's filing
requirement threshhold - and I admit that I have no idea what that number
might be.

> [Besides the day-to-day operating decisions, there will be

> circumstances that require unaimous consent from all members -- e.g.

> re/financing, sale, new member admission, etc.]

> TIA

>>However, I'm not aware

>> that other states tax LLC's that are partnerships and S corporations.

>> They will also have to file information returns in all 4 states, which

>> itself carries a fee. In California this is form SI-200C and the fee

>> is $25. You'll need a registered agent in California.

Gene E. Utterback, EA, RFC, ABA

--
<< ------------------------------------------------------- >>
<< 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 (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>