Tax preparers "doing business" in CA

[jklcpa]

Wasn't there a discussion recently about non-CA preparers being considered as doing business in CA if preparing CA returns and needing to pay some exorbitant fee, somewhere around $600?

Edited March 31, 2023 by jklcpa
moved from another topic

[BulldogTom]

3 minutes ago, jklcpa said:

Not to derail the convo, but wasn't there a discussion recently about non-CA preparers being considered as doing business in CA if preparing CA returns and needing to pay some exorbitant fee, somewhere around $600?

Yes there was a thread, but different situation.   

The OP on this thread has a W2 for working in CA.   Just a simple NR tax return to CA for the wages earned on the employees part in CA.

The earlier thread would apply to the employer of the TP.  Employer would have to register their business in CA (which they did if they are reporting wages to CA and producing W2s with CA earnings for their employees) and file a tax return on the income generated in CA. 

Tom
Longview, TX

[jklcpa]

2 minutes ago, BulldogTom said:

Yes there was a thread, but different situation.   

The OP on this thread has a W2 for working in CA.   Just a simple NR tax return to CA for the wages earned on the employees part in CA.

The earlier thread would apply to the employer of the TP.  Employer would have to register their business in CA (which they did if they are reporting wages to CA and producing W2s with CA earnings for their employees) and file a tax return on the income generated in CA. 

Tom
Longview, TX

Thank you. I thought sure that there was something about if I prepared CA returns, that I'd be considered as doing business within the state and would have to pay that fee. 

Did I have a bad dream about all of that?  Anything's possible at this point.   

[Lion EA]

We are "delivering" our product (tax returns) to CA residents; therefore, our fees for that are CA-sourced income and require us ourselves to file CA NR tax returns. Fun, huh?! Between CA and NY, I'm fed up. Going on extension myself, so I can break out my bookkeeping later.

[Lee B]

I always used to put my business and personal tax returns on extension and end up filing them in October

until I slipped and filed my 1040 around October 21st.

Now my business return is the very first tax return that I file every year and I file my 1040 by the end of February.

[BulldogTom]

1 hour ago, jklcpa said:

Thank you. I thought sure that there was something about if I prepared CA returns, that I'd be considered as doing business within the state and would have to pay that fee. 

Did I have a bad dream about all of that?  Anything's possible at this point.   

The Fee would depend if you were a Corp or LLC, then there is a minimum tax of $800.   If you are a SP, then no min. tax, just regular PIT from the tax rate schedules.

Tom
Longview, TX

[Lion EA]

I forgot about CA's LLC tax!!!

I'm a CT SMLLC filing a Schedule C, but have a few CA clients that moved there/inherited from a CA preparer. Do I have to register my SMLLC in CA if I never set foot in CA? Do I have to file a separate CA NR LLC return or just my CA NR personal return?

Definitely doing this in the fall.

Like cbslee, my returns were always after all my paying customers. Until the late night in October when our federal 1040 was rejected, because someone had used MY SSN. By the time I learned how to uncouple the states (CT & IL) it was after midnight. So, with printing/mailing federal and the states e-filing after midnight, I had some P&I. Now, I stop after all entity extensions mid-September and prepare AND e-file ours. Then return to the paying customers.

[jklcpa]

4 hours ago, BulldogTom said:

The Fee would depend if you were a Corp or LLC, then there is a minimum tax of $800.   If you are a SP, then no min. tax, just regular PIT from the tax rate schedules.

Tom
Longview, TX

I am a C corp, so no CA returns for me. I guess that doesn't apply if I prep a CA NR though since it is "delivered" elsewhere?

[BulldogTom]

12 hours ago, jklcpa said:

I am a C corp, so no CA returns for me. I guess that doesn't apply if I prep a CA NR though since it is "delivered" elsewhere?

If your corp is preparing returns for CA residents you are doing business in CA and have to pay the annual min. tax.   If you prepared the returns as an employee of your corp, you do not have CA source income.   If your corp prepares CA NR returns for TPs in other states there is no CA source income.

My wife is an employee of my SP.   She does almost exclusively CA resident returns.   She works out of my office in TX.   She has no CA source income, but my SP does and I file a 540NR to report the income and expense for CA source income related to my Sch. C.

Tom
Longview, TX

[Lion EA]

Do you allocate your SP expenses based on a ratio of income?

Is the $800 or whatever minimum tax an expense of your SP or a state tax of you as an individual on Schedule A?

I'm going on extension, but really dread preparing my own CA return (as well as IL and CT, and you know that NY will follow CA shortly) that decouples from the federal and has a high tax rate and...

Thank you to all you CA preparers and preparers on its border states who have figured this out.

[TexTaxToo]

19 hours ago, jklcpa said:

Wasn't there a discussion recently about non-CA preparers being considered as doing business in CA if preparing CA returns and needing to pay some exorbitant fee, somewhere around $600?

Here's a summary of the Bindley decision for sole proprietors:

https://www.jdsupra.com/post/contentViewerEmbed.aspx?fid=5627083b-2aaf-4917-bfcf-5c56d1daa368

This may be the topic you remember:  

 

[Lion EA]

OK, seeing the discussions altogether, it's bringing up more questions!!

I deliver CA NR returns to CT residents who work for multi-state banks and have CT resident, NY NR, and CA NR returns. I deliver the CA NR returns to CT, to CT residents. Is that doing biz in CA?

(I also have CA resident clients, so I understand that I'm delivering my product to a CA end-user in those cases.)

The LLC entity is a state entity. I'm a CT SMLLC. I am taxed as a sole proprietor. So, for CA purposes, is my tax prep biz an LLC or a sole proprietor?

[BulldogTom]

43 minutes ago, Lion EA said:

I deliver CA NR returns to CT residents who work for multi-state banks and have CT resident, NY NR, and CA NR returns. I deliver the CA NR returns to CT, to CT residents. Is that doing biz in CA?

My understanding is no.   Your customer is in CT so it is not CA source income.

Tom
Longview, TX

[BulldogTom]

45 minutes ago, Lion EA said:

The LLC entity is a state entity. I'm a CT SMLLC. I am taxed as a sole proprietor. So, for CA purposes, is my tax prep biz an LLC or a sole proprietor?

@Lion EAI don't have a definitive answer on this one.   My guess is the way you hold yourself out to your CA clients (SP or LLC) would control.   So if your Paid Preparer information on the bottom of the tax return says TAX PREP by LLC then you are doing business as an LLC and would have to register in CA as a foreign LLC in CA and pay the $800 annual LLC fee and file a 568 return.   If your Paid Preparer section says TAX PREP by LION then you may be able to get away with filing a 540NR with your Sch C apportioned to CA.  You will need to research this more.

Tom
Longview, CA

[Lion EA]

Well, fooey, that's still ambiguous. I don't want to use my SSN.

The federal returns have Preparer's name as Lion, my PTIN, and the box is checked for self-employed, then firm name is Dollars & Sense, LLC, followed by firm phone, address, and EIN.

But the CA return signature block does NOT have the self-employed check box. It has Paid preparer as Lion, but then Firm as Dollars & Sense, LLC, followed by my PTIN, address (home office), and EIN. That looks too much like a firm doing biz in CA. Foo, again. That's expensive. My CA return fee just doubled.

[Lion EA]

Thank you, Tom and Tex and everyone, for the links and for help with interpreting the CA law and requirements. I know a state SMLLC is a funky designation, not recognized by the IRS or "foreign" states. On Forms W-9, I check "Individual/sole proprietor or single-member LLC," so I know where I stand with the IRS. But, CA?

[Robbie]

Check the Ca 540 NR instructions for "Do I Have to File".  It could be that your CA source income is below the threshold for filing. Ca source income would be income only from your Ca residents.

 

https://www.ftb.ca.gov/forms/2021/2021-540nr-booklet.html

 

[Lion EA]

Good point, Robbie. However, both those charts use gross income and then AGI from all sources on the federal return, but based on CA law -- NOT just CA-sourced income. We're working three jobs with our two RMDs and hubby's teacher's pension to stay afloat, so have gross income greater than $52,000 and AGI over $44,000.

[JJStephens]

Wowzers! I do a Cali return once in a blue moon and occasionally do a brief biz consult. Should I say, I used to do them. Not no mo!

[Medlin Software, Dennis]

Coming to other states soon as well.  Emboldened by the Wayfair (anti Quill) ruling, states are eager to "follow" the Multi state tax commission guidelines.  For instance, the guidelines (not law, just suggested for member states) have clicking on an email or chat link, from within an adopting state, as triggering nexus in the state the customer or potential customer's machine is in.

[Lion EA]

Yep, I think I'll lose my CA returns before next tax season. A couple kids are grown and doing their own now. Some clients moved back to the NY/CT area. Two very nice couples remain in CA that I hate to send away; I inherited them from a CA preparer friend who retired. And one long-time client who moved to CA that I would hate to send away -- except her return jumped in complexity this year with the death of her mother and inheritance of multiple partnerships holding multi-family apartment buildings and lots of other investments. With the CA extension for filing AND paying now 15 October, I might put her on extension and then tell her to find someone local to her. I don't think I can charge her enough to make it worth the time I'll spend. Then there's MY return for NR CA !!!

[Robbie]

I am in California and semi retired this tax season.  This year I eliminated my out of state tax returns and eliminated the procrastinators who wait until October as well as the clients that I just didn't want to interact with any more (high maintenance).  Last year was difficult for me, so reducing the work load to a very manageable schedule is working out well.  I am four years in remission from my cancer, but that nasty beast will come back in the future.  Now my client base has been cut in half it will be easier in the future to close up plus I don't have the stress of getting the "I don't know...let me explain!" answer to a simple yes or no question.

Simplifying one's life has a lot going for it!

 

[JJStephens]

1 hour ago, Medlin Software, Dennis said:

Coming to other states soon as well.  Emboldened by the Wayfair (anti Quill) ruling, states are eager to "follow" the Multi state tax commission guidelines.  For instance, the guidelines (not law, just suggested for member states) have clicking on an email or chat link, from within an adopting state, as triggering nexus in the state the customer or potential customer's machine is in.

I expect to retire in the next 3 or 4 years. Hopefully, it will take them that long to make it happen. 

[Catherine]

I have one guy with a W2 who lives mostly in NYC, but has a pied-a-terre in LA where he spends about a quarter of his time. We file a CA NR return for him since CA considers his wages from NYC to be taxable in CA since he works from home remotely while he's in CA. If I have to pay $600 to do his return, I'm cutting him loose for next year. 

Anyone have a clue as to whether this CA source income thing applies to me in this case?

[BulldogTom]

1 hour ago, Catherine said:

I have one guy with a W2 who lives mostly in NYC, but has a pied-a-terre in LA where he spends about a quarter of his time. We file a CA NR return for him since CA considers his wages from NYC to be taxable in CA since he works from home remotely while he's in CA. If I have to pay $600 to do his return, I'm cutting him loose for next year. 

Anyone have a clue as to whether this CA source income thing applies to me in this case?

I don't think so.   As long as he is a resident of NYS and he files a CA NR return, the tax return product is delivered is his home state.   At least that is how I read it now.   CA could be lurking on this board trying to find new revenue sources.

Tom
Longview, TX