What does conducting business in California actually mean? There has been a lot of confusion around this topic, and it’s only increased in complexity since people working remotely and moving to other states either temporarily or permanently became more common during and after the pandemic.
When is someone considered to be conducting business in California?
If a person or business actively participates in any transaction for financial gain or is organized or commercially based in California, this also applies if they reside or have a business location outside of California. The key is if they engage in business activities within the state, such as having California-based clients.
My income does not meet the threshold. Do I still need to file a tax return in CA and pay the minimum tax?
A recent Office of Tax Appeals ruling emphasized that even if a business’s sales, property, or payroll are below specific thresholds, it may still be conducting business in California solely on business transactions or activities in the state. Taxpayers should be aware that filing requirements can arise unexpectedly. For instance, registering with the Secretary of State’s office triggers California’s $800 minimum franchise tax and filing requirements.
I’m unfamiliar with the requirements. Can I disregard the CA notice and avoid paying penalties?
Businesses cannot use a lack of knowledge of California’s tax requirements as an excuse for non-compliance, which can lead to significant penalties. Therefore, taxpayers must stay informed about these requirements, which empowers them, keeps them in control, and helps them avoid unexpected obligations and penalties.