Even if you’re a company registered in another state, if you do any business in California, you are subject to California tax and filing requirements. You may assume that since you’re based in another state, you’re immune to California regulations, but not so! Read on to get the scoop.
If you regularly conduct business in California, you’re required to qualify or register with the California Secretary of State (SOS) in order to have legal standing in California. In the event that you are sued by a California customers, you won’t be able to defend yourself without qualifying or registering in the state. If you don’t go through these procedures, any contracts you create can be voided, since your business won’t be fully recognized as an “entity” in California.
Doing Business in California
Not sure if you do enough business in California to need to qualify or register? If you meet any of these criteria, you do.
- Your business actively engages in any transaction in California for the purpose of financial gain or profit.
- Your business is organized or commercially based in California. A business is commercially based in California if it is the primary place from which the business is directed.
- Your business’ California sales exceed either $500,000 (annually adjusted for inflation) or 25% of your total sales. Sales include sales made by an agent or independent contractor of the entity.
- Your business’ California real property and tangible personal property exceeds either $50,000 (annually adjusted for inflation) or 25% of your total real property and tangible personal property.
- Your business’ California compensation paid exceeds either $50,000 (annually adjusted for inflation) or 25% of the total compensation.
- Any of your business’ members, managers, or other agents conducts business in California on behalf of the company, regardless of where your business primarily conducts business.
So if you conduct just a little business in California, you likely need to qualify or register your business so that you have a legal standing in California. It’s well worth the effort to protect your business in every state where you have transactions. Read more on this from the State of California Franchise Tax Board.