You’ll have to pay taxes in each state you do significant business in regardless of your company’s physical address. This is taken from California’s Franchise Tax Board. It lays out the criteria for when a foreign company “is doing business” in California.
“For taxable years beginning on or after 1/1/2011, a taxpayer is doing business in California if it actively engages in any transaction for the purpose of financial or pecuniary gain or profit in California or if any of the following conditions are satisfied:
- The taxpayer is organized or commercially domiciled in California.
- Sales, as defined in subdivision (e) or (f) of R&TC 25120, of the taxpayer in California, including sales by the taxpayer’s agents and independent contractors, exceed the lesser of $500,000 or 25 percent of the taxpayer’s total sales. For purposes of R&TC Section 23101, sales in California shall be determined using the rules for assigning sales under R&TC 25135, R&TC 25136(b) and the regulations thereunder, as modified by regulations under Section 25137.
- Real and tangible personal property of the taxpayer in California exceed the lesser of $50,000 or 25 percent of the taxpayer’s total real and tangible personal property.
- The amount paid in California by the taxpayer for compensation, as defined in subdivision (c) of R&TC 25120, exceeds the lesser of $50,000 or 25 percent of the total compensation paid by the taxpayer.
- For the conditions above, the sales, property, and payroll of the taxpayer include the taxpayer’s pro rata or distributive share of pass-through entities. “Pass-through entities” means partnerships, LLCs treated as partnerships, or S corporations.”
If your business falls under any of these guidelines then you can’t avoid the annual fee. To fully understand your company’s rights and obligations head over to. We started our business so that startups can get solid legal advice, and not have to rely on websites like Quora and boilerplate providers. Check us out!