Asked in Tax Law for California

Q: Is a non-California LLC making just passive (interest) income in California liable for California income tax?

I am a Texas resident who lives in Tijuana, Mexico. I am the manager and sole member of a single-member Wyoming LLC that only makes passive (interest) income from a loan and bank account interest in the state of California. Is my LLC subject to California income tax on this income? I have not filed California state income tax returns, but the state has sent me notices demanding tax returns.

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1 Lawyer Answer
D. Mathew Blackburn
D. Mathew Blackburn
  • Tax Law Lawyer

A: California considers you to be “doing business” if you meet any of the following:

Engage in any transaction for the purpose of financial gain within California

Are organized or commercially domiciled in California

Your California sales, property or payroll exceed specific amounts

Since you're making money off of a California resident they consider you to be doing business in California. The Franchise Tax Board is very aggressive and they often claim that they are owed tax when they're not so it's probably worth hiring a pro to do an analysis and see; or just run the return and see how much you owe.

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