Hello and thank you for your interesting question.
To avoid exposure to California income tax on _all_ of your income
(including income that you earn outside Californa) it is key that you
NOT be a resident of California. [More about the definition of
"resident" appears later in this Answer.]
In short, the answers to your questions are:
1. It only is "legal" for you to write your address as your
Registered Agent’s address if you ARE a California resident, but why
would you want to? If you don't want California to consider you as
being subject to its income tax on your personal, worldwide income
then you certainly shouldn't volunteer yourself as being resident in
the state.
2. Assuming that you are not listing yourself as a California
resident per #1 above, and if you are not in fact a Californa resident
(defined below), then your second question is if the ONLY activity in
your house is to receive about 2 letters a month on behalf of our
company, can you properly publish your personal address in California
as the company’s address, when the ONLY product you sell is a specific
Web Service through your website.
Here the answer depends on the contents and purpose of those
letters (assuming that all other activities associated with the
website are taking place outside the state).
If those letters are related to sales orders, then you'd better not
take them:
"Any retailer having any representative, agent, saleperson, canvasser,
independent contractor, or solicitor operating in [California] under
the authority of the retailer or its subsidiary for the purpose of
selling ... or the taking of orders for any tangible personal
property" is subject to Callifornia use tax.
Borders Online, Inc.
http://www.haledorr.com/pdf/borders.pdf
So if those letters are sales orders or the like (even if the buyer is
outside of California) then you risk being required to pay California
use tax and (as explained below) income tax too.
While the above is a sales and use tax case, the issue is similar for
your and your company's California income tax exposure:
"As a non-resident, you will be taxed on your California-source
income: fees, wages, salaries, business income, rents or other income
from real estate or other tangible personal property (vehicles,
machinery, equipment) in the state.
A non-resident partner of a partnership has California-source income
to the extent that the partnership receives income from California
sources. The same is true for ... a limited liability company (usually
taxed as a partnership)."
Determining California source income
http://www.taxprophet.com/faq/faqjul14.html
Conversely (and here is the definition of 'resident' that I promised
to provide:
"The state of California taxes its "residents" and those receiving
"California-based source income"; therefore, a non-resident receiving
non-California-based income has no income tax obligation.
Becoming a non-resident for California tax purposes is easier said
than done. California defines a resident as anyone: (1) in the state
for other than a transitory or temporary purpose; or (2) whose
"domicile" (the permanent home to which a taxpayer intends to return)
is in California but who is outside the state for a transitory or
temporary purpose. California presumes a resident spends more than 9
months a year in the state; however, spending less time does not
create a presumption of non-residency. Also, one may be a resident of
California even though his domicile is elsewhere.
California takes an extremely aggressive approach in classifying
taxpayers as residents. For instance, a taxpayer who worked for 4
years outside of California was still considered a resident, because
his wife and children remained in the state during that time. The law
has since been modified to permit a resident working outside the state
for at least 18 consecutive months to be generally considered a
non-resident. Annual visits to California for not more than 45 days
are permitted under this exception.
If you are domiciled outside California, visit the state for less than
6 months and do not work or engage in business during your stay, your
presence is considered temporary or transitory. Therefore, to avoid
California taxes, change your domicile to another state or country,
and then enter the state on a temporary or transitory basis."
Definition of residency
http://www.taxprophet.com/faq/faqjul14.html#A1
So there are some situations where it would be OK to include the
Californa address in your advertising (if you're not resident, and
you're not involved in taking or fulfilling orders) but all-in-all
you'll be better off letting somebody else be the California resident
agent and letting the Company's mail go to them instead of to you.
Search terms used:
california "resident agent"
california income tax resident
I hope you find this answer helpful. If you find any of it unclear,
please request clarification. I would appreciate it if you would hold
off on rating my answer until I have a chance to reply.
Sincerely,
Google Answers Researcher
Richard-ga
I hope you find thi |
Request for Answer Clarification by
yonidotcom-ga
on
29 May 2003 09:51 PDT
Thanks Richard for your professional answer!
It will be rated accordingly!!!
I'm seeking for the right mixture between the formal address and
address for advertising.
There are two possible addresses: Delaware (Registered agent's
address), and California (Where is my home).
Clarifications:
1. We will not sell ANY product via my home.
We will not have ANY sales representative in California, Helpdesk or
so.
No commercial activity will be conducted from my home !!!
The only product we are selling is a secific web service,
and this handels ONLY from Europe.
I'm not involved in the company's activity!!!
We even have no employees.
The other owner handales it all!
2. I'm just one of two owners.
IF, in the future, the company will be sold,
I will get my compensation.
But this is not even an issue now.
I am not, and will not(!) get ANY sallary/fee/compensation for beeing
an owner !!!
3. Sorry if I was not so clear when I posted the question.
I distinguish between two addresses:
Formal, and the advertising use.
For Formal use:
How formal address is defined? by us OR according to the registered
agent's address (Delaware)?
You see - I don't want to make mistakes.
We got the EIN (Employer's Identification Number) due to my SS number.
I assume I will pay no taxes, because the company have the income -
not me!
Is this assumption right?
And - sorry for the naive question: who defines the FORMAL address of
a company. The owner?
I (i.e. the company - when it have MY address) will get the IRS
letters, lawsuits, letters from the domain's registrar and so on. BUT
NOTHING MORE!
Lawsuits for example: Which address the complainant should send
letters to?
The registered agent's address (DELAWARE) or mine?
About the address for the advertising use:
QUOTE:
"
So there are some situations where it would be OK to include
the
Californa address in your advertising (if you're not resident,
and
you're not involved in taking or fulfilling orders)
"
I AM a resident,
BUT am not involved in taking or fulfilling orders!!
Even the phone number is not my personal one:
I.E The European phone company the seceond owner has dealt with
SPRINT,
and that's how we have a toll free number which goes directly to
Europe.
Can't we write on our website my american address?
in this case we will go to www.myus.com which gives American address.
But this is artificial: I am American. Why should I pay to get an
American address? Does is considered as also Formal address?
We use an American company (www.2checkout.com) to collect money for
us. So another possible mix is to publish the registered agent's
address in our site,
but when dealing with lawsuits or companies that sell to us,
we may use MY address.
If I'll decide to use the Registered agent's address,
is it LEGAL to us his address (Let's assume he agrees we can write his
Delaware's address).
Richard, I would appreciate it if you will post answer less
complicated than my question... 25% tip will also be taken into
consideration.
Thanks a lot!!!
|
Clarification of Answer by
richard-ga
on
29 May 2003 14:31 PDT
Hello again. Your request for clarification raises a new set of even
more interesting questions. I can only give them brief coverage in
this space. If you want full answers to them, you will need to post
them as new questions at whatever price you consider appropriate.
Regarding the two possible addresses: Delaware (Registered agent's
address), and California (your home):
Q 1. We will not sell ANY product via my home.
We will not have ANY sales representative in California, Helpdesk or
so. No commercial activity will be conducted from my home !!!
The only product we are selling is a secific web service,
and this handels ONLY from Europe.
I'm not involved in the company's activity!!!
We even have no employees.
The other owner handales it all!
A 1 If the mail you're receiving in California does not concern the
sales activity, you shouldn't owe California income tax. But I don't
know what sort of mail you expect to receive, so I can't be sure.
Q 2. I'm just one of two owners.
IF, in the future, the company will be sold,
I will get my compensation.
But this is not even an issue now.
I am not, and will not(!) get ANY sallary/fee/compensation for beeing
an owner !!!
A 2. So you won't have any compensation income for federal, CT or DE
purposes.
Q 3(1). Sorry if I was not so clear when I posted the question.
I distinguish between two addresses:
Formal, and the advertising use.
For Formal use:
How formal address is defined? by us OR according to the registered
agent's address (Delaware)?
A 3(1). The only formal address is the Delaware agent for service of
process. If the company is NOT doing business in California and
you're NOT doing sales activity from there, then whatever California
address you use as co-owner won't be a problem.
Q 3 (2)
I assume I will pay no taxes, because the company have the income -
not me!
Is this assumption right?
A 3 (2) No, this is wrong. I assume the company is taxable as a
partnership (rather than as a corporation). That means its profits
will be taxed 50% to you as the 50% owner.
Q 3 (3) And - sorry for the naive question: who defines the FORMAL
address of
a company. The owner?
I (i.e. the company - when it have MY address) will get the IRS
letters, lawsuits, letters from the domain's registrar and so on. BUT
NOTHING MORE!
Lawsuits for example: Which address the complainant should send
letters to?
The registered agent's address (DELAWARE) or mine?
A 3 (3) That's what the Delaware agent's address is used for - -
anybody who wants to sue the company serves their suit papers on the
Delaware agent, which gives the Delaware courts jurisdiction of the
case.
Q 3 (4) About the address for the advertising use:
QUOTE:
"
So there are some situations where it would be OK to include
the Californa address in your advertising (if you're not resident,
and you're not involved in taking or fulfilling orders)
"
I AM a resident,
BUT am not involved in taking or fulfilling orders!!
Even the phone number is not my personal one:
I.E The European phone company the seceond owner has dealt with
SPRINT,
and that's how we have a toll free number which goes directly to
Europe.
Can't we write on our website my american address?
A 3 (4) Yes but if California sees it they might think you're doing
business in CA which would create CA state tax exposure if it were
true so why do it?
Q 3 (5)
in this case we will go to www.myus.com which gives American address.
But this is artificial: I am American. Why should I pay to get an
American address? Does is considered as also Formal address?
A 3 (5) You must pay for the Delaware agent address because Delaware
law requires that every Delaware company have a Delaware-resident
agent for service of prcess.
Q 3 (6)
We use an American company (www.2checkout.com) to collect money for
us. So another possible mix is to publish the registered agent's
address in our site,
but when dealing with lawsuits or companies that sell to us,
we may use MY address.
A 3 (6) Again, if the CA activities are not the CA-taxable sort,
that's OK but I see it as risky.
A3 (7)
If I'll decide to use the Registered agent's address,
is it LEGAL to us his address (Let's assume he agrees we can write his
Delaware's address).
Q3 (7) Whatever mail the DE agent gets they'll forward to you. I
don't see the harm in that.
Thanks again for letting us help. I hope you find this useful
Sincerely,
Richard-ga
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