1. This site uses cookies. By continuing to use this site, you are agreeing to our use of cookies. Learn More.

CA 'Physical Presence' question

Discussion in 'Business & Tax Advice' started by Flood Fill, Mar 27, 2010.

  1. Flood Fill

    Flood Fill Newbie

    Joined:
    Feb 23, 2010
    Messages:
    1
    Likes Received:
    0
    Hypothetical
    - Person owns/co-owns out of state LLC anonymously (ie, new mexico)
    - Person is also a sole proprietor in California separately and legally doing business under his own name or DBA
    - LLC entity owns a website which isn't hosted in California for selling popular retail products
    - Nothing is owned in California by the LLC entity and the LLC entity has a bank account in the state it's incorporated in, not California
    - The LLC sells products via it's website, but instead of the LLC shipping out the products from the state it's incorporated in, the LLC entity pays the sole proprietor to dropship the item from California. So effectively, the LLC is buying the products from California using it's bank account in the state it was incorporated in, but not technically shipping out of California, since they are paying another entity to ship it.

    with a well worded TOS, can the LLC retain liability as opposed the sole proprietor who drop ships the products?
    Would the fact that the owner/co-owner is also a sole proprietor/lives in California mean that the LLC has a physical presence in California, even though the LLC has no assets in California and technically doesn't sell products from California?


    Thanks
     
    Last edited: Mar 27, 2010
  2. drdoc

    drdoc Newbie

    Joined:
    Dec 15, 2008
    Messages:
    19
    Likes Received:
    5
    couple of points:
    1) the TOS is not going to help you against someone trying to "pierce the corporate veil". You can remind people that the contractual relation is with the LLC, but this does not mean courts will follow you.
    2) tax presence in CA: It seems that the LLC does not have a tax presence in CA, you however, as the drop shipper do have a presence. All your income received for drop shipping is subject to CA law and CA taxation.
    3) You and the LLC are intimately intertwined. It seems easy to claim that the LLC is just a shell for you. Steps to take: maybe make it a corp and give 2 percent to your Ms Right now or someone else you trust. With a corp. this is easier, because shareholder are not supposed to represent the entity, whereas members ... .
     
    • Thanks Thanks x 1
  3. Michelle1

    Michelle1 Newbie

    Joined:
    Nov 17, 2009
    Messages:
    8
    Likes Received:
    1
    If you own a company, or part of the company, and you personally reside in California, then you are doing business in California, even if that company is located out of state. Therefore you will have to file as a foreign franchise in California and are subject to the $800 annual tax.

    California is the only state that is that strict.
     
  4. kittenishkishy

    kittenishkishy Registered Member

    Joined:
    Apr 11, 2012
    Messages:
    99
    Likes Received:
    5
    Location:
    Los Angeles, CA, 90014
    You can't do anything with the strict side of California, you have to face them for sure.
     
  5. volund

    volund Senior Member

    Joined:
    Jan 24, 2010
    Messages:
    1,158
    Likes Received:
    728
    Occupation:
    Trying to make a buck or two
    Location:
    NW Arkansas
    I am assuming you are trying to get around collecting sales tax.

    If you are actually shipping from CA then all your paperwork means absolutely nothing. The fact that you are shipping from within the state means you have a presence.

    Even if the website and the warehouse/shipper were really two completely different companies the shipping point could be considered a presence.

    Seriously dude do not screw around when it comes to sales tax. Even in good times the states do not play nice and are much worse than the irs, now that they are hurting they are playing serious hardball.