Do I Need To File As Foreign Business Entity In California?

Finance
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According to California Franchise Board website, a business needs to register as a foreign entity if they engage in “repeated and successive transactions” within the state.

I work as a consultant and have a potential contract coming through that’s within the state of California. It would be one client only, possibly up to 2 or 3 years in length. They’d pay me monthly and 1099 me at the end of the year.

As far as the State of California knows, it’s one single payment, since the 1099 just lists total amounts. Although I’m not sure if it mattered if I got paid daily, weekly, monthly, or once per year, if that would make a difference in needing to be a foreign business entity.

I plan to register a New Mexico LLC for business use in California because I don’t want the state to have my real name on file because I don’t want them trying to claim I’m a California resident and taxing me retroactively on everything for years past. There’s a chance I may move to California in several years and I’m afraid of my name going into their system and then in a few years saying “nope, you were a resident since 2018 so go back and pay us taxes for everything”

I know I could easily prove I wasn’t a resident of California. I have a lease out of state. For this contract I’d be spending maybe only a few weeks each year in California total over the course of each year with airplane ticket receipts. However, f— California and I don’t want to have to deal with them coming after me and hiring a lawyer. Far easier to register a New Mexico LLC, pay the actual taxes I owe them, and dissolving the entity when the contract is up. Not trying to avoid actual taxation, just trying to avoid additional taxation.

California and NY are two states I refuse to do business with in my real name or in an entity that has my real name because they have aggressively gone after people charging them backtaxes and penalties claiming they’ve been residents for years.

I assume I can have New Mexico LLC do business in California with the one client, not be considered “repeated and successive business” since it’s one client, and no where on the tax return do I need to give my real name. Just the EIN of the New Mexico LLC. But this is just an assumption.

I’m not trying to avoid paying any taxes I actually owe, I’m trying to avoid them claiming I owe more than I do.

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I’m just curious… have you previously created NM LLCs? (I had looked into WY a while back).

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I would highly recommend talking to a lawyer. We don’t know your facts, what your business does, where you actually reside, and a lot of other relevant information, including why you set up the LLC.

It looks like you’re confusing two different definitions of “doing business.” The definition for the requirement of registering to do business is different from the definition for the requirement to pay tax. If you spend time working physically in California you have physical presence there.

Depending on what your business does and what you were doing in California (selling tangible property?), that may give the state the right to tax you under federal law. Now, if they have the right to tax you, depending on what you were selling and the characteristics of who you were selling it to (ordering office, headquarters, billing address, server location, etc.), it may be considered California source receipts. In that case, you’d have a positive apportionment factor and may be required to file in California. That doesn’t necessarily mean you have to pay the $800 minimum tax (but may be difficult to avoid).

You aren’t going to be able to avoid taxing authorities by registering your LLC in New Mexico if you’re actually trying to be compliant with taxes. It’s also generally not advisable to try to hide from them. They aren’t going to try to treat you as a resident if your sole connection with the state is a contract your LLC had with a business in the state. It doesn’t matter whether you’re operating through an LLC or not.

Regarding the 1099 - if you’re operating through a sole member LLC that you individually own you’re supposed to use you SSN, not EIN.

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They don’t require member or manager information or any annual reports (no $50 fee/year). Wyoming LLCs require a signer on the annual report, but an attorney can do that (maybe other ICs as well-not sure).

But the statutes are different. They have different creditor protections, a different set of case law, etc. There are reasons to organize in both of these states, but it really depends on why you’re setting up the LLC and what your individual risk factors are…

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Sorry if I wasn’t clear enough in my original post.

I fully plan to pay taxes on all of the income to the state of California.

I’d like to avoid registering my NM LLC as a foreign business in California. My reason for avoiding registering as a foreign business is to save the close to $1k they charge and also because they’ll require I give them my real name.

I have no intention of avoiding taxes. I’d like to avoid the BS requirement of registering as a foreign business.

My business is consulting. I have a client that wants to pay me to do consulting work for them. I go there, build some spreadsheets, leave, and get paid over 6 figures for the year. They are really expensive spreadsheets.

Also, I’d like to avoid hiring a California attorney because it would likely be cheaper for me to pay the $800 annual filing fee to California than to pay an attorney for advise on whether or not I can avoid paying this fee. Especially since if the lawyer tells me I can’t avoid filing as a foreign business then I’m out both the $800 and the attorney fees. It makes no sense for me to hire an attorney.

I would pay $1k to an attorney to find out if he thinks I can skip paying an $800 fee. And if he says I do have to pay it, now it cost me $1,800.

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If you hate California so much why are you considering moving here in a few years?

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Personal reasons for an opportunity that would require I live there for a few years.

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You weren’t unclear, we just don’t have all the facts. I wasn’t asking for the facts, just recommending you actually talk to someone specifically about your situation. The rules are complicated and heavily based on individual facts and circumstances. I.e. simply saying you’re an IC going to California to build spreadsheets for a company that’s paying you to do that isn’t specific enough to be able to determine whether you would have to qualify as a foreign entity.

The $800 minimum franchise tax is an FTB tax, not a secretary of state fee. Unless you can claim exemption, you’ll likely have to pay it if you file a tax return as an entity subject to the tax, even if you don’t qualify to transact business through the SOS.

Definitely fair to not want your name on public records associated with the entity so nothing wrong with not wanting to qualify to do business, not to mention the fees associated with qualifying, any costs to meet publication requirements etc.

That said, the franchise tax board will likely have your real name if you file a return. It’s possible there’s some sort of sharing agreement from the FTB to the SOS. That’s a lot different than your name appearing in public records, but you still aren’t “anonymous” as many of the New Mexico incorporators appear to claim. I think that is why you need to discuss with someone so you can determine what can and cannot be done so you don’t end up in a situation where you thought CA would not have your information, but it does.

I don’t/didn’t mean to imply that you were trying to avoid paying taxes. I only meant that members of New Mexico LLCs aren’t completely anonymous if the entity is paying taxes - something which many out of state individuals registering their LLCs in New Mexico don’t tend to consider.

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