California is not a low-tax state. The corporate tax rate is 8.84% for C Corporations (1.5% for S Corporations); both must pay a minimum $800 tax each year. If I’m in my car for any appreciable length of time, I’ll hear a commercial advising you to establish a Nevada Corporation. And, of course, my clients who hear that call me.
There’s a fundamental problem with having a Nevada corporation and doing business in California and hoping you will avoid California tax on the corporation: nexus. If a corporation is doing business in California (have a “nexus” in the state), the corporation is liable for California income tax. Yes, foreign (out-of-state) corporations must pay California income tax.
So if a California business reincorporates in Nevada, you will still have to pay California tax. Now, a Nevada corporation can make sense…if you’re going to operate in both California and Nevada, for example, or if you plan on moving to Nevada. Just realize that if you have a Nevada corporation, and you operate in California, you are liable for California tax, and if you don’t pay, you’re committing a crime. ClubCal is no more fund than ClubFed….
Tags: BozoTaxTips