Foreign (non-California S-Corps - Spidell

Foreign (non-California S-Corps

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Message Board Foreign (non-California S-Corps

This topic contains 1 reply, has 2 voices, and was last updated by Sandy Weiner 5 months, 2 weeks ago.

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  • #164203
    Donald Bayne
    Participant

    I understand the rules for foreign LLCs having California resident members. I cannot find similar language regarding foreign S-Corps having California resident shareholder(s).

    It appears foreign S-Corps only need to file when there is income sourced to California, i.e. zero CA percentage for all three factors. There is a California (1) shareholder, bank account and mailing address.

    Do any of you have more clarity on the subject?

    Thanks,
    Don

  • #164729
    Sandy Weiner
    Participant

    Donald, if the S corporation is managed from California then it is considered to be doing business in the state and must file a return. It’s hard to tell from the facts you presented. Below is an excerpt from our California Taxation of Multistate Businesses:

    Doing business
    Examples of doing business include the following:
     A corporation with its home office in California for carrying on managerial functions and a
    warehouse in Nevada for sales and distribution purposes was doing business in California
    even though the managerial functions were not extensive (Appeal of Cagan Homes, Inc. (1965)
    65-SBE-044); and
     A foreign corporation that took orders, solicited sales, and dealt with customer service issues
    in California but handled billing and payments from its Wisconsin headquarters and delivered
    goods from out-of-state plants was doing business in California. (Appeal of Kimberly-Clark
    Corporation (1962) 62-SBE-094)
    Not doing business
    Examples of not doing business include the following:
     A corporation that sold its assets and ceased its department store business but received
    interest on the buyer’s note and proceeds from an insurance policy was not doing business
    in California (Appeal of The Blanc Corporation (1964) 64-SBE-022); and
     A Nevada corporation with a California resident who was the corporation’s sole shareholder,
    but the entity managed investments and real property located outside of California, and the
    corporate offices and only corporate officer were located in Nevada. (Daniel V, Inc. v. FTB
    (February 6, 2013) Los Angeles Superior Court, Central District, Case No. BC 457301)
     Practice Pointer
    The taxpayer succeeded in Daniel V. by presenting the following documentary and oral
    testimony showing that:
     The entity’s bank accounts and brokerage accounts were held in Nevada;
     Board of directors meetings were held at the entity’s office in Nevada;
     The entity’s original books and records were maintained in Nevada;
     The only corporate officer resided in Nevada;
     The corporate officer signed all checks and handled all business affairs from Nevada; and
     Both the shareholder and the corporate officer testified that all decisions were made by the
    corporate officer, and the shareholder relied on him to manage the entity.