Legal Question in Real Estate Law in California

Getting a Nevada LLC as a Californian

What is the best way to establish a Nevada LLC, as a California resident, and not get taxed in California? Are there steps you can take to avoid the penalties. I want to buy real estate on the east coast with a Nevada LLC

Asked on 4/03/06, 4:03 am

2 Answers from Attorneys

Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Getting a Nevada LLC as a Californian

The annual fee you'd perhaps be paying California isn't a penalty, it's a so-called franchise tax, a charge for the privilege of doing business in California.

In general. Corporations and LLCs must register, file returns, and pay franchise taxes in (1) the state where they are formed, and (2) every state in which they transact business.

So, if you live in California, form a Nevada LLC, and the LLC then owns and manages a rental property in New York, the LLC will probably have to register. file and pay franchise taxes in Nevada and New York.

If it simply owned real estate in New York but didn't participate in its management (i.e., didn't interview tenants, arrange for repairs, etc.) then maybe it wouldn't have to pay New York franchise taxes, but this is a question of New York law and I can't offer an opinion.

The LLC would not be liable for California taxes purely on the basis that it had a member who was a resident of California. However, it sounds as though you would be the managing member and would be performing some management functions for the LLC from your residence in California (or from an office or whatever). Even such a minimal level of participation as keeping the LLC's books in California, using a California address for correspondence about its affairs, etc. could constitute doing business in the state and oblige the LLC to resgister here as a foreign LLC and pay the California franchise tax.

Why would anyone living in California form a Nevada LLC to pursue a business in New York? It won't save taxes, it will increase them, by adding an unnecessary obligation to report and pay in a second (or third) jurisdiction. I've formed two Nevada corporations myself, but for the express purpose of owning and running businesses located in Nevada.

Read more
Answered on 4/03/06, 12:10 pm
Daniel Harrison Berger Harrison, APC

Re: Getting a Nevada LLC as a Californian

If you get paid or receive distributions from the Nevada LLC, and are a California resident, you will personally have to pay income tax in California on that money. That's a big misconception of a Nevada LLC. Talk to a CPA.

Collection laws in Nevada favor the debtor. That's a big reason why many choose Nevada to form an LLC. It also has no state income tax. LLCs don't pay income tax anyway, although they do pay a franchise tax or a in some states a gross receipts tax. But in your case, since you're a California resident, this wouldn't benefit you anyway as you would have to pay income tax in California.

Read more
Answered on 4/03/06, 12:49 pm

Related Questions & Answers

More Real Estate and Real Property questions and answers in California