Legal Question in Business Law in California
As an on-line business (designing, no tangible goods) with no store or office, can the owner from California form an LLC in another state and NOT have to pay California's franchise tax?
2 Answers from Attorneys
Business activity that'll subject an entity to the franchise tax is not confined to brick-and-mortar or inventory considerations. If it is an on-line business, the authorities will ask, "Where is the hand that clicks the mouse?" If the business is exercise of brainpower or sale of intellectual property, the focus of the investigation will be on where are the creative people? Every business has one or more centers of activity. If it is a steel mill, where are the blast furnaces, rolling mills, fabricating shops? If it is Web site design, where is the mouse, the monitor, the memory, and the guy or gal that manipulates them all? The tax collector has had to move from the 19th Century model of what constitutes doing business in the state -- and he's out there looking, desperately, for more $$$ for California.
The other attorney is right on point. The issue is where is the work done. If the hand that clicks the mouse, etc. is in California, California tax laws apply. Consult with an attorney in your area for specifics.
Kevin B. Murphy, B.S., M.B.A., J.D. - Mr. Franchise
Franchise Attorney
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