Discussion:Would a Nevada resident have to pay personal income taxes to California on the S Corps distribution of profits from California SOURCES
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Discussion Forum Index --> Tax Questions --> Would a Nevada resident have to pay personal income taxes to California on the S Corps distribution of profits from California SOURCES
| 15 June 2007 | |
| Would a shareholder of an S Corp have to pay the State of California personal income taxes on the shareholders distribution of profit. The S Corp is incorporated in Nevada and does business as a foreign corporation with the State of California. So the S Corp has a REVENUE SOURCE directly from California which is taxed by the State of California at 1.5% of profits or the minimum of $800.00 which ever is greater. The shareholder is not a resident of California and is a resident of Nevada, which has no personal income tax. Since California residents get taxed on all income from all SOURCES through out the country, would the shareholder a resident of Nevada, not california have to pay personal income taxes to the State of California on the distribution of profits from the S Corp from California SOURCES? California's top tax bracket 9.3% Would the shareholder have to allocate from which SOURCES the profits came from to pay California personal income taxes on the distribution of profits.
Thank you. | |
Michaelstar (talk|edits) said: | 15 June 2007 |
| YES - CA source income is taxable in CA. If it is a non resident - file a 540NR. | |
| 15 June 2007 | |
| S corp shareholders have taxable income whether or not there are distributions. That's a basic rule of all pass-through entities except trusts. The amount taxable to the Nevada shareholders in the example will be determine using the apportionment factors proscribed by California law. -- Larry Hess, CPA | Albuquerque, NM | Talk to me | |
| 15 June 2007 | |
| The Nevada resident shareholder owes tax to California on his distributive share of the S corporation's income allocated and apportioned to California in accordance with the UDITPA rules (CRTC Secs. 25120 ff). Business income is apportioned by a three-factor formula (property, payroll, sales) with the sales factor double-weighted.
The corporation will file Form 100S, which includes K-1s detailing the nonresident shareholder's California source income. The nonresident individual will file Form 540NR. The tax rate is calculated as if the taxpayer had been a California resident for the entire year -- i.e., including all income regardless of source. That rate applies to the California source income. If there are multiple nonresident stockholders with no other California source income, they may elect to file a composite Form 540NR. In that case the California source income will be taxed at the top marginal rate of 9.3%. | |
| 15 June 2007 | |
| Would a composite return in CA pay at 9.3% or at 10.3% given the recently enacted 1% mental health tax? Also if the non-resident shareholder is subject to the mental health tax (income > $1MM), I don't think they can be included in the composite return. I am recalling this from distant memory, so I may be mistaken. | |
| 16 June 2007 | |
| The top marginal rate for purposes of the group return is 9.3%. You are correct that a nonresident who is subject to the "millionaire's tax" cannot be included in a group return. See http://www.ftb.ca.gov/professionals/taxnews/0606/0606_3.html. | |
