Thursday, July 24, 2014

Is Your Out-Of-State LLC "Doing Business" In California? / tax filing obligations and tax liabilities in California

D. Matthew Richardson and Dina B. Segal for Sheppard Mullin write: Individuals and entities, including those from outside California, who invest in or do business through an out-of-state limited liability company ("LLC") may be surprised to find out that they have filing obligations and tax liabilities in California as a result of California's far-reaching rules and interpretations related to when an LLC is treated as "doing business" in California.

The law:

Under California law, all LLCs are required to annually file a California tax return and pay at least an $800 California franchise tax if they:
  • Engage in any transaction in California for the purpose of financial gain or profit.
  • Are incorporated or organized in California.
  • Have qualified or registered to do business in California.
  • Are "doing business" in California, whether or not they incorporated, organized, qualified or registered under California law.
The Franchise Tax Board ("FTB") takes the position that an LLC organized in a jurisdiction outside California is nevertheless "doing business" in California if:
  • It is a member of an LLC that does business in California.
  • It is a general partner in a partnership that does business in California.
  • Any of the LLC's members, managers, or other agents conducts business in California on behalf of the LLC.
In addition, an out-of-state LLC is "doing business" in California if:
  • The LLC is commercially domiciled in California (i.e., California is the place where realistic control of the LLC's functions is centered).
  • Sales, including sales by the LLC's agents and independent contractors, in California exceed the lesser of $500,000 or 25% of the LLC's total sales.
  • Real or tangible property of the LLC in California exceeds the lesser of $50,000 or 25% of the LLC's total real and tangible property.
  • The amount paid in California by the LLC for compensation exceeds the lesser of $50,000 or 25% of the total compensation paid by the LLC.
For purposes of these calculations, the sales, property and payroll of the LLC include the LLC's pro-rata or distributive share of any pass-through entities (i.e., partnerships, LLCs and S-corporations).

Some examples that may surprise you:

  • A Nevada LLC acquires a passive minority membership interest in a Delaware LLC that owns and operates several California shopping centers.  The Nevada LLC may be treated as "doing business" in California simply by reason of its ownership of a membership interest in the Delaware operating LLC, resulting in the Nevada LLC's own California tax filing obligations.
  • A Montana LLC owns an apartment building in Montana that is managed by an on-site (Montana) property manager.  One of the three LLC managing members is a California resident.  The Montana LLC may be treated as "doing business" in California simply by reason of the existence of a California managing member.

Penalties:

The State can impose a penalty of $2,000 per taxable year if an out-of-state LLC is doing business in California and fails to file a tax return and pay the taxes and fees due. The penalty is due only if the FTB sends a written demand that a return be filed and the LLC does not file the return within 60 days.

Also, any contract made by an out-of-state LLC in California that is neither qualified to do business nor has a corporate account number from the FTB is voidable by any other party to that contract for the period during which the out-of-state LLC fails to file a tax return required by the FTB.

Note that the FTB's determination of when an out-of-state LLC must file tax returns is in contrast with the California Corporations Code.  Under the California Corporations Code, any entity that "actively engages in any transaction in California for the purpose of financial gain or profit" must register with the California Secretary of State.  But for this purpose, an out-of-state corporation is not considered to be transacting business in California merely because it is a member or a manager of a domestic or out-of-state LLC or a limited partner of a domestic or out-of-state limited partnership.  Moreover, the new California Revised Uniform Limited Liability Company Act, effective as of January 1, 2014, provides that an out-of-state LLC "may" register in California and does not impose penalties for failing to do so.

Non-residents of California are also not necessarily off the hook for California taxes arising from ownership of an LLC.  Such non-residents may owe taxes on pass-through income sourced from an LLC's California activities despite their non-resident status.

BOTTOM LINE:  Your out-of-state LLC may have nexus and filing obligations in California and taxes may be owed for such LLC's activities in California!
Posted on 2:41 PM | Categories:

FreeAgent makes payments easier for small businesses with PayPal Here

Online accounting provider FreeAgent is making it easier for UK small businesses to get paid faster by their customers, through a unique integration with PayPal’s innovative new payment service.

FreeAgent is the first online accounting system in the UK to integrate with PayPal Here. Their partnership makes it easier for small businesses to process credit and debit cards and take payments via their smartphone or tablet - wherever they do business, then automatically record the payments in their FreeAgent account, making it easier to manage their business finances on the go.

The integration means that FreeAgent - the multi award-winning online accounting system specifically designed for small businesses and freelancers - will enable its customers to use PayPal Here as a payment option to accept credit and debit cards when they create an invoice.

By using the PayPal Here app on their iPhone, Android smartphone or iPad, FreeAgent customers will be able to show their invoice to a client and have them pay instantly with their credit or debit card through the PayPal Here Mobile Chip and PIN card reader.

Ed Molyneux, CEO and co-founder of FreeAgent, said: “PayPal Here is a game-changing service that makes it easier than ever for small businesses to take payments on the spot, so we’re delighted to be the first online accounting system in the UK to integrate with it.

“Our goal at FreeAgent is to completely streamline small business finances, all the way from timeslips to tax return. Thanks to this integration FreeAgent customers will enjoy a quicker and more intuitive method of invoicing, getting paid and managing their finances than ever before.

“We know that invoicing and getting paid is one of the biggest issues for micro-business owners in the UK, so we expect PayPal Here to be extremely popular with the ever-growing legion of UK small businesses and freelancers who currently use FreeAgent to manage their accounts.”

PayPal introduced the ‘pay as you go’ PayPal Here app and Chip & PIN card reader for small and medium-sized businesses last year. There are no monthly fees, just the initial purchase price for the card reader and a small fee per transaction. Business owners connect the reader with the PayPal Here app on their iPhone or Android smartphone, or iPad to start accepting card and PayPal payments anywhere in the UK with mobile or Wi-Fi reception.

Narik Patel, Director of Mobile Merchant Services at PayPal UK, says, “We designed PayPal Here as a flexible, affordable way for businesses of all sizes to take card payments quickly and securely via their smartphone or tablet wherever there is 3G or wifi reception. It’s been a hit with smaller businesses as it reduces their reliance on cash and cheque payments, it’s ‘pay as you go’ and businesses only pay a small fee when they take a card or PayPal payment.

“This integration with FreeAgent supports our vision to support small businesses to focus on what’s important to them – getting paid and enabling them to focus on growth.”

Find out more at http://www.freeagent.com/
Posted on 2:37 PM | Categories:

Well-Funded Competition Forced VC-Free FreshBooks To Take Investors After A Decade Of No's

Alex Konrad for Forbes writes: For twelve years, Mike McDerment has run FreshBooks out of Toronto to be self-sufficient. But when your market gets hot, you don’t want the smallest war chest. So even as FreshBooks announced its first major funding round today, it’s decision to take venture capital after years of growing on margins shows just how fast the market environment can change–and why the benefits of going it alone can become less attractive fast.
FreshBooks raised $30 million, it announced Wednesday, in its first institutional round from Oak Investment Partners, as well as Atlas Venture and Georgian Partners. The money’s supposed to help the company grow at a faster clip, expanding what’s currently a team of 150 to 400 in the next two years. They’ll help with engineering and sales and marketing. All that’s pretty standard as a use for funding.
But since raising $100,000 from friends and family when the company first started, FreshBooks and its CEO have eschewed venture backing. In the fall of 2012, McDerment told Bloomberg that while he had no specific rule against taking funding, venture investors didn’t have much appeal to him. VCs build a portfolio with a few bets, they look for patterns and ways to improve a company’s operations, and they expect an eventual return. And he was adamant that any investor in FreshBooks would need to be one that wouldn’t take stock with liquidation preferences that would allow them to cash out even if the company tanked.
Fast forward to 2014, and McDerment’s taken on the growth capital he was loath to consider before. What’s changed? Venture funding begets more venture funding.
By selling software to small businesses to help entrepreneurs and shopkeepers who are not professional accountants run their businesses and manage their expenses, FreshBooks has long gone against QuickBooks and its parent Intuit INTU -0.1%, a company with a market cap of more than $23 billion. FreshBooks’ user base of 10 million is centered around North America, and while it may now look more internationally, that’s allowed fast-growing competition to set its sights on the U.S.
The lead challenger, as McDerment knows, is a New Zealand company, Xero. That company’s got more than 200,000 paying customers already, and most importantly, it’s setting its sights squarely on the U.S. market. Back in October, Xero raised $150 million of funding of its own, the majority of it from U.S. investors led by Matrix Capital Management and Valar Ventures, Peter Thiel’sventure firm focusing on companies from outside the U.S. Valar’s mission is specifically to help such companies expand aggressively stateside. [snip].  The article continues @ Forbes, click here to continue reading...
You can follow the author Alex Konrad on Twitter here.  Alex writes startups, enterprise software and venture capital.

Posted on 6:21 AM | Categories:

Spree Webinar: Top 5 Tricks for Connecting Your eCommerce Store to Quickbooks / August 6th at 2:00 PM EDT

Spree Commerce writes: Is it too much to ask for a product that easily connects your store to Quickbooks? Users want to get the most out of their Quickbooks investment, but they don’t always know how. One of Wombat’s most popular features is our integration with Quickbooks. No custom code required.
Join us for a live Webinar on Wednesday, August 6th at 2:00 PM EDT to see how easily Wombat handles Quickbooks. Sameer Gulati, Chief Product Officer for Spree Commerce, will tell you the top five tricks you need to know to rid yourself of the headaches of managing your inventory and accounting with Quickbooks.
Growing your e-commerce business while you manage your inventory and accounting is no easy task. Many growing retailers use Quickbooks, but they find that it's hard to get the most out of it. Sameer Gulati, Chief Product Officer for Spree Commerce, has helped multiple stores get up and running with Quickbooks. He'll tell you the top 5 tricks you need to know so you can rid yourself of those headaches once and for all.
In this webinar we'll discuss:
  • How Quickbooks can help you with your inventory and accounting
  • How to configure Quickbooks in a way that makes sense for your business
  • Why connecting your store to Quickbooks is so hard
  • How to connect your store to Quickbooks so your data can flow easily and accurately
  • And much, much more!
In this Webinar we’ll discuss:
• How Quickbooks can help you with your inventory and accounting
• How to configure Quickbooks in a way that makes sense for your business
• Why connecting your store to Quickbooks can be so hard
• How to connect your store to Quickbooks so your data can flow easily and accurately
• And much, much more!
Register now! Space is limited!
Posted on 6:06 AM | Categories:

Why Do We Need Business Intelligence?

Brian Petersen, Director of Business Intelligence Solutions  for Jet Reports writes:  What if you found yourself needing to present a solid case in front of your boss for why you want to purchase a Business Intelligence solution? What would you say? Anything that involves asking your boss to spend money might cause you to begin to sweat.

You may never have to face this situation but, frankly, this scenario is making me nervous. So to help us both feel better, I’ve laid out a few points to help you understand a few advantages of BI.

A streamlined structure for reporting and analytics
Having a Business Intelligence solution with a data warehouse and cubes generally presents a very streamlined way for our users to get access to data. It’s widely known that ERP systems are designed and optimized for inputting information, but they are not built with the end-user in mind for getting information back out in an intuitive or user-friendly manner. A Business Intelligence solution helps ease the process of getting the data out, making it very, very easy to create stunning reports and dashboards. And most importantly, we can structure the data in a way that makes sense for the end users.

Consolidate multiple data sources into a single place
Business Intelligence allows you to consolidate data from multiple places in the same data warehouse. For example, if you have a legacy system in addition to Dynamics NAV plus Dynamics CRM, and a separate system to handle logistics, you can consolidate all of that information into a single set of tables in the data warehouse. The data warehouse would allow you to create a Finance Transactions table to present all of your financial transactions from your different data systems all in one place. In addition, this would give users one single point of access for all reporting across the organization.

Control business rules and calculations for a single version of the truth
Business Intelligence provides the ultimate control over the business rules and calculations while facilitating one version of the truth for the end users. I’ve been in multiple meetings in the past where we sit down to talk about something regarding sales, and the meeting turns into two people arguing about who has the right numbers because their numbers are different. One person was looking at gross sales, and another person was looking at net sales with returns. Business Intelligence makes sure that everyone is looking at exactly the same information, and the information is being pulled from the same place.

Data-driven companies simply perform better

An MIT Sloan School of Business study surveyed 3,000 global executives, managers and analysts to understand how companies use analytics to drive operations and strategy. In the study, they classified organizations as top performers and low performers, looking for anomalies between the two. They found top performing organizations were more than twice as likely to use analytics to guide future strategy and operations. Many people tend to look at Business Intelligence as a long-term investment, but it’s important to note how top-performing companies use analytics to guide day-to-day operations in addition to more strategic initiatives.
Posted on 6:06 AM | Categories: