CA is one of the stricter states on this issue because of their high
franchise tax. In my state of Colorado, you aren’t really “doing
business” unless you have employees in the state. But, we have no
franchise tax in CO on entities.
Even if owning one rental is not “doing business”, you have a
challenge when you sell because there is generally a big state
withholding tax issue. The title company at closing will
withholding a percentage of proceeds of the sale to make sure you
pay your taxes.
I currently reside in California. Since I have property here as well as in other states, should I set up an LLC in those other states where I have property or continue to use my California LLC?
Posted by John Merchant on August 06, 2004 at 10:03:47:
Doesn’t really matter, legally, so I’d think your only real consideration is going to be cost of inc’ing and cost of annual re-registrations.
Knowing CA is high as heck, you might want to do your LLC in NV, which has more vigorous privacy protections than most states & which, even including cost of some NV service to act as your AFS (agent for service), and cost of registering it in CA, it may be cheaper than CA.
Be aware too, that if all you’re doing is buying & selling RE, with the occasional rental in the interim, you may not need to register an out of state LLC in any other state…as legally, it may not be DB (doing business) in the 2d state.
Lots of law on this topic, so you might want to wander over to your law library and check out what is/isn’t DB in CA. You’ll probably find a jillion court decisions on this and be pretty educated in a short while.
Ask the Law Librarian at your courthouse law library to show you where the CA Digest is & start with that…it’s a digest of reported court decisions which you can find, then read in detail in the CA reports.
What has always amazed me is the gigantic volume of DB decisions ruling that tons of business activities are NOT seen as DB in the various states…e.g. a traveling salesman from state A might be working, selling, in a dozen other states, and yet his Co. might have no requirement to register itself in any one of those other states.