Out of State LLC

[akame5150]

Happy Holidays to All!!!

If I live in California and I start an LLC in another State, am I still required to pay the State of California $800 a year fee?   If so, what are the true benefits for starting an LLC out of State versus my home State of California?

Any help would be appreciated.
Thanks

[mcwagner]

CA taxes you on intergalactic income.   Thus, any of the following will subject you to CA taxes:  operating the entity from CA (your home), purchasing property in CA, banking in CA, being domiciled in CA.

So, you have to avoid having nexus in CA to avoid CA taxes.

You would have to be domiciled in another state, only purchase properties out of CA, bank outside of CA, etc.  A CA mailing address probably won't raise many flags.

[Land Baron]

mcwagner,

Being the LLC guru that you are, would you please comment on my out-of-state LLC following dilema:

I live in an area of Ohio that borders West Virginia.  Most of my investment opportunities will be in West Virginia.   Can I set-up the LLC in West Virgina, with the LLC's mailing address being my home in Ohio?

The state web-site is a little info-lacking.  I've read that I would need to have a physical "presence" in the state, in case I would need to be served legally.  However, it also said that it wouldn't have to be an actual place of business and that I could designate an agent.

Just wanted to know if I could get around setting-up initially in Ohio and then applying as a "foreign" in West Virginia.  If it matters, I'm figuring on a single-member LLC.

Thanks!

[Dave T]

Your mailing address and the physical address of your resident agent do not have to be the same.  Your West Virginia LLC must have a physical address within the state and that is what a resident agent can do for you, perhaps for a fee as low as $100 per year.

You say that most of your investing will be in WV.  If your LLC will be doing business outside of WV, then you will need to register your LLC as a "foreign corporation" in the other state(s) and pay the state(s) registration fee as well.

In addition to your own state of residence, you will have to file a state tax return in each state where your LLC does business if the state has an income tax.

[Land Baron]

Thanks, Dave.  Now, let's see if I have this straight.

I live in OH, but set-up the LLC in WV, where my investments will be.

My Ohio mailing address (primary residence) is the mailing address that will be used for just about everything.

I designate an agent, who has a physical address in WV.  This is so they have a WV location to serve legal papers to.  Could this simply be someone that I trust to then deliver the papers to me?  Perhaps a relative?  (zero cost).

For my single member LLC, the income passes straight through onto my personal return for Federal.  Could you please elaborate a little more on how it would apply to the State returns?

And lastly, should I do any "business" in any other state (including Ohio where I reside), then I'll have to set-up a foreign LLC in that state.  Does this mean that the original LLC that I set-up in WV is considered the main one?  Are the other foreign LLC's branches of it or stand-alone?

Thanks.

[Dave T]

Wal-Mart is headquartered in Arkansas.  For the sake of this discussion, let's say that they are incorporated in Arkansas, too, though in actuality they could be incorporated in any state.

There is only one company, but they have a retail presence in every state.  In each state except Arkansas, Wal-Mart has to register to do business.  They don't have to incorporate in each state, since they are already incorporated in Arkansas.  They just have to register their business presence in each state where they intend to do business.

Same with your WV LLC.  There is only one LLC, but if it does business outside OH, then OH will consider your LLC as a foreign (non-domestic) corporation.  For each non-domestic state where your LLC will do business, the LLC has to register itself.  Each registration will also require you to have a physical address for a registered agent.  You can be the registered agent and use your OH address when you register your WV LLC in OH as a foreign corporation.

Any trusted individual can serve as your registered agent.  

For your federal income tax return, the income passes through to your personal 1040.  However, for state tax returns you need to check with each state's department of revenue to see how they handle taxation of your LLC.  Some states may require you to file a business tax return for the LLC.  Others may just allow you to file a personal non-resident tax return to report the income earned in that state.

For example, your LLC earns income in WV.  The LLC income passes through to your personal 1040 and from there to your OH state tax return.  OH still taxes the income earned by your WV LLC because you are domiciled in OH.   Income earned in WV will also be taxed, either on a "corporate' tax return or on a non-resident personal income tax return.

[mcwagner]

I just wanted to clarify one thing (if I can):

If you domicile (form the entity) in WV, you must file and pay state tax in WV.  If you aren't doing business in OH, you may not have to file/pay tax in OH.  You will have to check OH laws to see if having the  LLC operated from your home in OH qualifies as "doing business".  Some states are pretty onerous about this (CA) and some are not.

[Land Baron]

Thanks a lot for the info guys!

I believe that WV and OH have a credit agreement for personal income earned in either state as a non-resident while living in the other.  I think it's geared toward when an employer withholds taxes in one state while you live in the other.  Not sure how they handle LLC/business related income.  I'll look into it further.

I'm glad that it sounds like I can set-up the LLC in WV, since I figure all of the investments will be there.  Also, there's a good chance that I'll be moving back to WV from OH withing the next few years, so it would be good for then.

Thanks again.

[Dave T]

In your case, then, OH will still tax your WV income but then turn around and give you a tax credit for taxes paid to WV on that income.  You break even if the tax rates are the same in both states.  You pay a little more if the tax rate is higher in OH than it is in WV.