Small Business Owner? You May Be Subject to California Income Tax – Even if You Live in Another State

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Small Business Owner? You May Be Subject to California Income Tax – Even if You Live in Another State

Regular readers may recall the name Blair S. Bindley, a screenwriter whose cautionary tax tale, which appeared on our law blog earlier this year, was also recently written about in Forbes. Despite physically residing in Arizona, Bindley, a sole proprietor, was found liable for California income taxes because he received California-source income in the amount of approximately $40,000. While this story illustrates valuable points for all taxpayers, it may be especially relevant to members of the film and television industry, such as screenwriters, editors, or cinematographers, who are likely to encounter California-based clients during their careers. If you have performed services for a California business, then you, like Bindley, may be required to file and pay California income taxes with the Franchise Tax Board (FTB). Read on to learn more about how out-of-state taxpayers are impacted by California’s income tax regulations – and what to do if you are at risk for an FTB tax audit.

Were You Paid by a California Company? You Might Owe State Income Taxes to the FTB

The FTB is an aggressive tax agency that, under the appropriate set of circumstances, can take your California tax refund (in some cases, acting improperly); levy your bank account; publish your name on a public list; or simply impose costly penalties upon you. If you have unpaid or unfiled California state income taxes, it is reasonably safe to bet that the FTB will eventually contact you – or audit you.

As we discussed in our prior article about Bindley’s appeal, OTA Case No. 18032402 (May 30, 2019) – viewable in full here – the taxpayer was found liable for California income tax based on a number of factors. (“OTA” refers to the Office of Tax Appeals, a state government agency created in 2017 to help settle FTB-taxpayer disputes.) For example, because Bindley “conducted a sole proprietorship within and without California,” and because his business was further classified as “unitary,” he was subject to “the apportionment rules of Regulation section 17951-4(c),” which affects how business income is apportioned to the state.

(A brief note concerning the same regulation: on its apportionment and allocation page, the FTB states, “A nonresident individual with income from a business, trade, or profession who must apportion its business income to California under CCR section 17951-4 must use the single-sales factor for taxable years beginning on or after January 1, 2013, unless more than 50% of the gross receipts were derived from a Qualified Business Activity.”)

The state of California applies extremely complex guidelines when determining where your income derives from – or in other words, whether you are liable for California income tax. Ensure that you receive on-point financial guidance by working with an experienced California business tax attorney from the Tax Law Office of David W. Klasing. We can educate you on your rights and responsibilities as an out-of-state business owner, enabling you to outmaneuver and avoid costly business tax mistakes (a few more examples of which are listed here). Even if you have already been chosen for an audit, our California state tax audit attorneys can work to limit the damage – and step in to defend you if criminal tax charges are at issue, such as tax evasion.

Los Angeles FTB Tax Audit Lawyers for the Film + Entertainment Industry

At the Tax Law Office of David W. Klasing, we are California tax attorneys serving the entertainment industry. Boasting more than 20 years of experience, an award-winning legal team, and conveniently located L.A. offices just minutes from Hollywood, our Los Angeles tax attorneys are uniquely suited to meet your small, midsize, or large business’ needs. If you are an actor, director, producer, screenwriter, editor, production designer, cinematographer, sound designer, lighting technician, special effects artist, or work in a related profession, we can provide bookkeeping and accounting services, audit representation, IRS appeals representation, or criminal tax defense, depending on your needs. Contact us online right away to schedule a reduced rate appointment, or call the Tax Law Office of David W. Klasing at (800) 681-1295.

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In addition to our staffed main offices in Irvine,  the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los AngelesSan BernardinoSanta BarbaraPanorama CityOxnardSan DiegoBakersfieldSan JoseSan FranciscoOakland, Carlsbad and Sacramento.

 

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Will it cost me more to hire the Tax Law Offices of David W. Klasing, who’s main office and the vast majority of the firm’s staff is located in Irvine California, but an appointment only Satellite office is close to my location, as opposed to a local company?  Absolutely not!  See our policies that address this issue here.