Message Board › FTB says filing requirement for non-resident performing services outside CA
This topic contains 4 replies, has 3 voices, and was last updated by Lynn Freer 1 week, 3 days ago.
November 28, 2018 at 12:43 pm #123319Jenny JiaParticipant
The client is organized as an LLC in CA (3 of the partners are based in CA) but all the business happens in Indiana – they own 2 buildings there that are locally managed. The LLC files a composite tax return for Indiana.
A 1099 for the property manager was erroneously sent to the FTB so the FTB sent a Notice of Proposed Assessment to the manager.
We protested with an explanation that this was income earned by a nonresident of CA and the purchaser of their service (the LLC) received the benefits outside of CA so it’s not taxable to CA. We also issued corrected 1099s that showed $0 in box 7 on the state form.
The FTB responded with a letter from the Filing Enforcement Section that references FTB Pub 1031. I called the practitioner hotline and the agent said the law changed so a CA tax return is required since the LLC is organized in CA. I’m having trouble finding anything that backs this position up. The manager is not a partner in the LLC, the real property is not in CA, and the income should not be sourced to CA.
We prefer not to file a CA tax return – the manager is not our client. I’m plan to respond to the letter but also am thinking we should bring in the tax advocate. Does anybody have advice for this situation?
November 28, 2018 at 1:49 pm #123420Lynn FreerParticipant
The LLC must file a return. This is nothing new. If they are registered in CA they must file. If the managing members are in CA they must file
Every partnership (including LLPs and REMICs classified as partnerships) must file Form 565, Partnership Return of Income, and every LLC not classified as a corporation must file Form 568, LLC Return of Income, if the entity:
Is doing business in California;
Is registered in California;
Is registered in another state or foreign country, but registered with the SOS; or
Has income from California sources.
(R&TC §§18633, 18633.5)
November 28, 2018 at 2:16 pm #123455Jenny JiaParticipant
Thanks Lynn. To clarify, the LLC did file a return.
The issue is the property manager (who is not our client) who the FTB says needs to file a CA return even though they are a nonresident and the income is wholly sourced out of state.
November 30, 2018 at 3:23 pm #124490Tony AlvarezParticipant
Why was the property manager 1099 in the first place? Was this for actual services? Reimbursements or lodging? This may be helpful to argue the erroneously 1099.
December 1, 2018 at 11:07 am #124594Lynn FreerParticipant
I’m sorry I misunderstood. No, the property manager shouldn’t have a filing requirement if he/she is not in CA and the property isn’t in CA. You might want to contact the Taxpayer Advocate’s office to get a resolution.