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Subject Author Date
State tax filing Vijay Sharma 02-28-2008
Posted by Vijay Sharma on February 28, 2008, 12:41 am
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 An owner of a trucking business residing in California forms a S
Corporation in Nevada and drives all over the country.

Should the State (Form 100S) part of the business tax be filed for
Nevada? I would assume his personal tax filing (Form 540) would be
filed for California, correct?

Thanks for your help.

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Posted by Katie on February 28, 2008, 2:59 pm
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> An owner of a trucking business residing in California forms a S
> Corporation in Nevada and drives all over the country.
>
> Should the State (Form 100S) part of the business tax be filed for
> Nevada?  I would assume his personal tax filing (Form 540) would be
> filed for California, correct?
>
> Thanks for your help.
>


Nevada has no individual or corporate income tax. All the corporation
needs to file in Nevada is the annual report to the Secretary of
State.

The corporation must be qualified to do business in California and
must file Form 100S and pay the 1.5% corporate level tax on its
California source income. If it is taxable in other states, it can
apportion its income (using the interstate trucking formula provided
in Reg. 25137-11.

100% of the corporation's income will be reported on the stockholder's
K-1 and included in his California resident individual income tax
return. If any of the corporation's net income is apportioned to any
other states, California will allow him credit for the tax he pays to
those states, limited to the proportion of his California tax
liability that relates to that double-taxed income (see Form 540
Schedule S). His salary will also be entirely included in his
California resident return. Federal law prohibits other states from
taxing any of his salary, even if he drives through many states.

Makes no sense for this corporation to be organized in Nevada, at
least not from a tax perspective. Doesn't save a thing.

Katie in San Diego

--
<< ------------------------------------------------------- >>
<< 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 Vijay Sharma on March 1, 2008, 2:53 am
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>
> > An owner of a trucking business residing in California forms a S
> > Corporation in Nevada and drives all over the country.
>
> > Should the State (Form 100S) part of the business tax be filed for
> > Nevada? I would assume his personal tax filing (Form 540) would be
> > filed for California, correct?
>
> > Thanks for your help.
>
> Nevada has no individual or corporate income tax. All the corporation
> needs to file in Nevada is the annual report to the Secretary of
> State.
>
> The corporation must be qualified to do business in California and
> must file Form 100S and pay the 1.5% corporate level tax on its
> California source income. If it is taxable in other states, it can
> apportion its income (using the interstate trucking formula provided
> in Reg. 25137-11.
>
> 100% of the corporation's income will be reported on the stockholder's
> K-1 and included in his California resident individual income tax
> return. If any of the corporation's net income is apportioned to any
> other states, California will allow him credit for the tax he pays to
> those states, limited to the proportion of his California tax
> liability that relates to that double-taxed income (see Form 540
> Schedule S). His salary will also be entirely included in his
> California resident return. Federal law prohibits other states from
> taxing any of his salary, even if he drives through many states.
>
> Makes no sense for this corporation to be organized in Nevada, at
> least not from a tax perspective. Doesn't save a thing.
>
> Katie in San Diego
>
> --
> << ------------------------------------------------------- >>
> << 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 atwww.asktax.org. >>
> << Copyright (2007) - All rights reserved. >>
> << ------------------------------------------------------- >>

Thank you Katie for your response.

One thing I failed to disclose is that he has received a 1099-MISC
from a California business and this business is his only client for
which he drives around the country. So since this client is
California based wouldn't it mean that he has California Source Income
so he would need to file the State Business tax only in California
even though he drives in many States?

Also, is the reason for him filing an Annual Report with Nevada
Secretary of State is because he organized his Corporation there?

Thanks again.

--
<< ------------------------------------------------------- >>
<< 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 March 1, 2008, 10:27 am
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> One thing I failed to disclose is that he has received a 1099-MISC
> from a California business and this business is his only client for
> which he drives around the country.  So since this client is
> California based wouldn't it mean that he has California Source Income
> so he would need to file the State Business tax only in California
> even though he drives in many States?

I'm not sure if the income is California based because the company
that paid the 1099-MISC is California based. If that were the case,
then dividends from California companies paid to stockholders around
the world would be subject to California tax.

However, the website at http://www.taxprophet.com/faq/faqjul14.html
says that business income from California companies is indeed
California income (but I guess dividends are not). Which would mean
that even if moves out of California to Nevada and operates from
Nevada, and he continues to contract/receive money from this
California company, then he would have to pay California taxes on this
money through 540NR or the business equivalent of this tax form.

In any case, because his company is based in California and operates
from California, he has to pay California taxes on all his income.

> Also, is the reason for him filing an Annual Report with Nevada
> Secretary of State is because he organized his Corporation there?

Yes. By operating his business from CA and forming his corporation in
NV, he has two tax returns or forms to fill out -- except NV has no
business income tax, just an annual report. Say he formed his
business in TX and operates from CA, then he would have to pay both TX
and CA business taxes.

--
<< ------------------------------------------------------- >>
<< 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 Katie on March 1, 2008, 9:44 pm
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>
> Thank you Katie for your response.
>
> One thing I failed to disclose is that he has received a 1099-MISC
> from a California business and this business is his only client for
> which he drives around the country.  So since this client is
> California based wouldn't it mean that he has California Source Income
> so he would need to file the State Business tax only in California
> even though he drives in many States?
>
> Also, is the reason for him filing an Annual Report with Nevada
> Secretary of State is because he organized his Corporation there?
>
> Thanks again.
>


The article that "removeps-groups" linked to has to do with the source
of income for individual nonresidents, under the California Personal
Income Tax Law (Part 10 of the California Revenue & Taxation Code). A
Subchapter S corporation is subject to the California Corporation Tax
Law (CRTC, Part 11), a separate tax law that applies to corporations.
S corporations are subject to the tax just like C corporations, except
that the rate is reduced (1.5% vs. 8.84%) and there are some
differences in calculating the base. The sourcing rules under Part 11
are somewhat different from those under Part 10, so the article has
limited application in this situation.

The question here is whether the corporation is doing business in
other states (the states through which its truck travels) so as to be
required to file returns and for the individual stockholder to be
required to pay taxes there. In general, a trucking company is
taxable everywhere it goes. Which makes sense: it uses the roads,
pollutes the air, etc., etc. in every state it travels through. It
certainly has a physical presence in every state. However, for a
small operation (just one truck?) filing in all those states seems
like overkill. It may be that the income that would be apportionable
to any one state, other than California, would be so small that it
would scarcely justify the state's cost of processing the returns, let
alone the taxpayer's compliance costs.

If that is the case, and the corporation has not filed or qualified to
do business in any state other than California, reporting all of the
income to California and none to any other state may be the most
practical thing to do. However, your client should be aware that his
corporation (and he himself, as the stockholder) is technically
subject to tax in every state he travels through.

These are the risks you and your client need to consider. Another
state might become aware of his operations there by, for example,
auditing a local company to which he makes deliveries or from which he
picks up loads. If returns have not been filed, usually the statute
of limitations remains open indefinitely. The California statute of
limitations is 4 years. So a state other than California might pick
up on this, let's say, 5 or 6 or 7 years down the line. You could
file returns in that state and file claims for refund with California
for the open years. But the other state could go back and assess
taxes for years that are closed in California. As long as the amounts
are small, your client may be willing to take that risk. Just bear in
mind that the total amount of exposure increases as the years go by.

The fact that his only customer is a California company has nothing to
do with this. The question is where his corporation earns its
income. It earns income by transporting goods from one place to
another.

If the corporation has little net income after paying the stockholder/
employee's salary, this whole issue may be of very minor importance.
It's only the flowthrough income that would be taxable by the other
states (in addition to any fixed-dollar minimum or other corporate-
level taxes imposed by particular states). As I said before, federal
law prohibits the other states from taxing the stockholder/employee's
salary on a pro rata basis.

Yes, the Nevada annual report is required because the corporation is
organized there. Of course there is also an annual report to be filed
with the California Secretary of State because the corporation is
qualified to do business in California. Or at least, it better be!

Katie in San Diego

--
<< ------------------------------------------------------- >>
<< 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. >>
<< ------------------------------------------------------- >>

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