Understanding California Business Compliance for Out-of-State Entities

At Otterz, one of the most common questions we encounter is: “Am I doing business in California?” This seemingly straightforward question can be surprisingly complex, particularly when it involves potential tax implications. If your company is deemed a foreign corporation or LLC operating in California, you could be responsible for a minimum $800 Franchise Tax and potentially additional income taxes.

So, how can you determine whether your business qualifies as "doing business" in California? Here are some key considerations:

1. Revenue Generation: Are you earning money in California?
2. Physical Presence: Do you have a physical location, such as a storefront or office, in the state?
3. Employee Presence: Are you hiring employees within California?
4. Asset Ownership: Do you hold assets in the state?

According to the California Secretary of State and the State of California Franchise Tax Board, your business is considered to be doing business in California if it meets any of the following criteria:

• Actively engaging in transactions in California for financial gain or profit.
• Being organized or commercially domiciled in California, meaning it is the main place where your business is managed.
• Exceeding the annual threshold amount for California sales or having sales that make up 25% of your total sales.
• Holding California real property and tangible personal property that exceeds the annual threshold amount or constitutes 25% of your total property.
• Having California compensation that exceeds the annual threshold amount or makes up 25% of your total compensation.

If you find that your business meets any of these conditions, you may need to file for "Foreign Qualification" with the California Secretary of State. At Otterz, we're here to help you navigate this process. Feel free to contact us at hello@otterz.co or call us at 857-234-4000 for more information and support.