Leaderboard

I have now learned that I will never prepare a CA tax return for anybody, unless they are willing to pay me an extra $1,000 or more just to cover the extra taxes and fees I may have to pay. Wow.

CA taxes revenue to the end customer location. So if your friend is providing a service to a customer in CA, that revenue is sourced to CA. There is no de minimis exception that I am aware of. From the FTB website - "We consider you to be “doing business” if you meet any of the following: Engage in any transaction for the purpose of financial gain within California" Then you have to look at what type of entity they are. Corps, S Corps, Partnerships and LLC all have a $800 minimum tax that needs to be paid yearly. In order to pay the tax, you need a state tax ID number. To get a state tax ID number, you need to register with the SOS. The SOS has an annual filing fee of $25 (last time I checked). If your client is a Sole Proprietor, they can just file a 540NR showing the CA profits from their business. Hope this customer of your friend is generating enough revenue to cover the cost of doing business in CA. Tom Longview, TX

My understanding, in very simple so not all-inclusive terms, is that if I prepare a tax return for a person/entity in CA, then I have delivered that product/service into CA and, therefore, have CA-sourced income. I think that means that even though I prepare in CT, e-file from here, and upload the client copy to my portal, that if the person who benefits is a CA resident, I have CA-sourced income. Many states look at where the work is performed. CA looks at where the work is delivered or the location of who/what benefits from my work. I would like to be wrong. I've had two clients move to CA and inherited a couple more from a retired preparer. I'm raising my rates more than usual this year. I don't know if I want to keep my CA clients' rates low or raise them a whole lot more to, as Gail said, cover my additional registration, documentation, and CA taxes.

Wow! Thanks, everyone! You're the best! I forwarded this thread to my friend. Cheers!

That should have been being done on an ongoing basis. It's crazy, in my opinion, not to do so.

As I have gone through my updates and CPE this year, I think the consensus of the "experts" is to just include the K2/K3 and reduce your liability. There is too much outside of your control to use the exceptions. That is what I am going to do. Paper is cheaper than the hassle. Tom Longview, TX

Let the mother claim her children for any available credits. If mother gets a refund, she can repay grandmother.

It is not going to be pretty... The Wayfair sales tax results have varied rules by state. Many adopted the recommend thresholds, a few have no threshold. For sales tax, enforcement is an issue as it would likely be complaint driven, followed by investigation. In other words, I doubt State X is going to try to find out how many items/dollars a small company has sold, to see if they went over their threshold. The cost would likely outweigh the income, making it not profitable. The purpose was to go after the big online retailers, and scoop up some of the medium folks. This implementation based on Wayfair may end up with similar results. But, for the purposes of this group, with ethics and with easy proof of your location, compliance will not be something to risk. The new issue with this interpretation by CA, is setting the bar very low. Having a clickable link to email or chat is a huge stretch, but likely enforceable unless challenged. States could develop or subscribe to some sort of web scraper to EASILY get enforcement leads. I could see an entire new industry, such as re-positioned debt collectors, selling leads for a small take of the result. We may have to go back to sharing plain text non clickable email address on our web site (and the resulting spam via web scrapers) versus munged clickable links and chat windows. Or, we will have to send countless emails (which can be sales oriented) so our customers have an easy way to reply. Gray area right off the bat is a clickable link in the software itself. Interestingly, and again, not a lawyer, but if the state determines the company has nexus via a clickable email link, then they may be able to claim proper jurisdiction in in the state, making one have to defend outside of their physical location. It may be the tipping point to get undefended compliance, fear, for instance, of CA winning by default because someone in the East could not come to (or hire representation in) CA to defend. Just a non lawyer opining, but I suspect it would take another SCOTUS ruling to even challenge what CA has determined (and which will inevitably followed by others).

The really tricky part about valuing crypto is that the value changes by the second or nonosecond or something, and it trades 24/7. No looking up the closing price like with funds, or averaging the day's opening and closing prices for stocks. (One appraiser uses the average day's high and low of three crypto exchanges that exchange into dollars and then averages the averages--not sure if that cuts the mustard.) I would put the onus on the donee to research the price when the crypto left his/her wallet. If over $5k, there are few "qualified" appraisers to sign the necessary paperwork, so good luck with that. Few charities are equipped to take crypto anyway. For those that do, the client could get help from them to determine FMV. So yes, I am pretty much saying that it is NOT OUR PROBLEM to figure this out, other than making sure the client follows the rules (and explaining over and over that basis has nothing to do with it).

This is from Spidell Tax seminar I took last week. It is pretty clear. A Tennessee sole proprietor who provided consulting services to a California insurance agency had California-source income that was taxable by California, even though the sole proprietor performed all his services in Tennessee and was never physically present in California. (Appeal of Bass, 2022-OTA-145) All of the trainings and consulting services conducted by the sole proprietor for his California customer and its employees were conducted from Tennessee via Skype or personal phone calls, or physically in Tennessee. Under the OTA’s precedential decision in Appeal of Bindley, 2019-OTA-179P, physical presence is not required to tax the income received by a nonresident sole proprietor if their customer receives the benefit of the services in California. In addition, California’s nonresident sourcing regulation (18 Cal. Code Regs. §17951-4) incorporates California’s corporate apportionment rules (R&TC §25120 et seq.), including the market-based sourcing rules (R&TC §21536; 18 Cal. Code Regs. §25136-2) if a nonresident sole proprietor conducts a unitary business both inside and outside California. Under the reasoning adopted by the OTA in Bindley, a sole proprietor conducts a unitary business if they are in a single line of business, in this case “consulting.” Furthermore, because the taxpayer operated in Tennessee but had customers in California, he was conducting business both inside and outside California and therefore was subject to California’s corporate apportionment rules. Tom Longview, TX

Bummer. Do I have to pay, like NY? Of course, with the highest state tax rates in the nation, I'll be paying! Anyone want a couple of CA clients that I inherited?

Yes, I still receive mail and email from the FTB even though it's been 3 or 4 years since I last filed a CA Tax Return.

Yes. Your information is at the bottom of the tax return, so they know who prepared the return. Tom Longview, TX

Is that also the case for us (CT or where ever) tax preparers with remote CA clients?

Abby, your friend's consulting does not appear to be a "protected activity'. My preliminary reading is that she would have to register.

I found the applicable information in FTB Pub 1050: https://www.ftb.ca.gov/forms/misc/1050.pdf Based on my reading I believe my client's shipping of Roasted Coffee to customers in CA still meets the definition of "protected activity" under Public Law (PL) 86-272, 15 U.S.C. §§381-384, which Congress adopted in 1959. "PL 86-272 prohibits a state from imposing a net income tax on the income of a person derived within the state from interstate commerce if the only business activities within the state conducted by or on behalf of the person consist of the solicitation of orders for sales of tangible personal property." Abby, this Pub has a lengthy list of protected and unprotected online activities.

I have a S Corporation client who is a Coffee Roaster/Wholesaler. They have customers in California to whom they ship Roasted Coffee every week. In the past that has not created a California Nexus. What changed and when was the effective date. I would appreciate a link to the applicable part of the FTB website. Also, have you noticed any commentary and analysis? Thanks in advance, Lee

Best payment ever!!!! Tom Longview, TX

The Priest whose tax returns I have prepared for many years is not considered an employee of the Church, but as a SE Sole Proprietor. This presents many issues and headaches. On the rare occasions when he presides over the funeral at the funeral home instead of at the church, he receives a 1099 from the funeral home. He is also Head Chaplain at a local hospital. From there, he receives a W2 as an employee. This is probably one of my most difficult returns because he has his fingers in many pots (ie: rentals, CG., etc) What I can say in his defense is that he agonizes over his return right along with me. He trusts and relies on me totally. He was not born in this Country and is in total fear of the IRS. You are perhaps wondering why I don't "fire" him. Because, I morally can't! He was born and raised in Poland and is the sweetest, holiest person that I know. I do charge him for what I do and the plus side is that he prays for me, constantly!