CA Franchise and or income tax

[mircpa]

Hello everybody

I have a question for one of my client, His software consulting business is domiciled in IL, sends an employee to california to provide software services for one of his client, do we have a nexus here with California, client received letter from FTB to file 2006 tax return, client does not rent/maintain any office, phone listing in california. If i have to use schedule R to apportion, do we apportion based on combined basis of payroll and revenue generated from employee or one of the other

thanks to all who responds

[jainen]

>>provide software services for one of his client<<

Clearly the taxpayer has California-source income from the business services provided within the state. What form of entity is it?

[ed_accountant]

California Franchise Tax Board gets its 1099 information directly from the IRS, so I would guess that your client, either a Corporation or LLC, used California address and received some 1099 information to that Califonia address. Somehow, Franchise Tax Board has your client in their system. They do not send random letters.

My opinion is that your client is "doing business in CA" thus is required to file in CA. If you have sales and an employee in the State you are doing business.

Your client should:

1) register with the CA Secretary State as a foreign corporation or LLC

http://www.sos.ca.gov/business/bpd_forms.htm#corp

2) File the CA Franchise Tax Board forms and pay the minimum taxes of $800 for each year and penalties....

Thanks