California Incorporation – Look Out For the High Franchise Tax

California incorporation is simple on its face while being complex once you get into it; however, affordable online California incorporation is only a step away. When starting a new business, there are many important decisions to make and many rules and procedures that must be addressed. While there is no single source for all filing requirements, the following steps have been developed to assist you in starting your business using California incorporation.

Choose a business structure. Select a business entity type after an overview of the principal types of legal business structures available in California with your legal representative and accountant.

For a California incorporation, you should be aware of the following facts:
• The annual tax for C corporations is the greater of 8.84% of the corporation's net income or $800.00.Newly incorporated or qualified corporations are exempt from the annual minimum franchise tax for their first year of business.

• Every stock corporation must file a Statement of Information within 90 days of filing, and every year thereafter.

• Except for newly incorporated or qualified corporations, all corporations doing business in California are subject to an annual minimum franchise tax of $800.00. This is true even if the corporation is inactive or operates at a loss during the year, and regardless of whether or not it did business for a full 12 months.

• California may require that you obtain a business license and pay a licensing fee based on your business type or profession. Please check with the state to make sure your business is complying with the license requirements for your particular profession.

If you perform a California incorporation and do business in another, you could subject your business to taxation in both states. California will tax a corporation that exists in their state, even if it is not doing business there. Check this out carefully, and discuss with your attorney and/or accountant. Generally speaking, it is usually less expensive and complicated to do a California incorporation, if that is your resident state. You should avoid paying franchise taxes to more than one state unless there is a very good reason for doing so.

California has made an attempt to be more corporate friendly with an informative web site, and detailed business information available online. However, the Secretary of State office is strict about having entities register in California with any intrastate business conducted elsewhere. They do not want to lose the revenue. Although the initial filing fee is reasonable, look out for the high $800.00 minimum annual tax on a California incorporation.
Author Bio
Gust A. Lenglet has been an accountant and financial advisor for many years. He is President and CEO of HBS Financial Group, Ltd. and offers online tax filing through his many web sites. He is also an accomplished author in the tax, legal, and education fields.
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Will the Estate Tax Ever Go Away?

 

 

 

By: Thomas McNally

 

The "Estate Tax" is the tax that the government puts on the assets that are transferred to your beneficiaries when you die. Taxable assets can include real estate, stocks, money in a bank account, and other valuable belongings. It does not look like the estate tax will permanently go away. However, with careful planning, you can reduce taxes substantially.

Americans have been planning their estates in accordance with the Economic Growth and Tax Relief Act since 2001. This Act is important because it changed 441 tax laws and was the biggest estate tax reduction in 20 years. Here is an overview of what the Act covers:

Lower Tax Rate
The Act lowers the tax rate on the following taxes:

1. The marginal estate tax; the tax levied on your estate when you die. Note: This tax can be a burden on heirs if you die and leave behind assets for them, but no monetary funds to cover the tax on that asset. For example, if you leave behind a home, the government might tax up to 55% of its value. Your heirs will have to find a way to pay those taxes if he or she wants to keep it. The Act's lower tax rate helps to decrease the amount of taxes on assets such as your home so that your heirs are not overburdened, or forced to quickly sell the asset at a low price so funds to pay taxes are available.
2. The generation skipping transfer tax (GST); the tax break given to you if you are transferring assets to a grandchild or great-grandchild.
3. The gift tax; the tax levied on assets that are given away as gifts before you die.

Increased Asset Transfers
The Act increases the amount of assets that can be transferred at death without the estate or generation-skipping tax.

Temporary Tax Repeal
In the year 2010, the generation skipping tax will be repealed. This repeal means that grandparents can gift portions of their assets directly to their grandchildren and great grandchildren without having to lose a portion of those assets to taxes.

For the year 2010, the estate tax also will be repealed for one year. If you die in the year 2010, you can give your entire estate to your heirs without having to worry about paying any taxes. However, if you die in 2011, only $1 million is eligible to be passed on to your heirs without being taxed.

Because the estate tax will not be permanently repealed within the foreseeable future, it is important that you plan your estate so that your desires can be carried out in the most efficient manner, regardless of the year of your death.

Understanding the complicated tax system can be a challenge for someone not versed in tax law. If you are planning your estate protection and distribution, we recommend meeting with an attorney. Your attorney can walk you through the steps needed to ensure that your heirs receive as much of your assets as possible. Author Bio
Thomas McNally is the staff writer at the National Directory of Estate Planning, Probate & Elder Law Attorneys. McNally stresses the importance of finding a qualified estate planning attorney to ensure that your estate passes to whom you want, when you want, and is carried out in the manner you've chosen.

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Can I avoid sales tax on my aircraft by registering it in a Delaware Corporation?

 

 

 

 

 

By: Thomas A. Alston

Many people believe that they can set up an LLC in Delaware or any other location outside California in order to avoid sales or use tax in California. The state where the LLC or corporation is registered has nothing to do with legally avoiding tax in California. In fact, as I have mentioned before many times, don't leave things to chance.

If the State of California decides to, they can charge you with fraud. The following section of law will be their support.

6485.1. 50 percent penalty. Any purchaser of a vehicle, vessel, or aircraft who registers it outside the State of California for the purpose of evading the payment of taxes due under this part shall be liable for a penalty of 50 percent of any tax determined to be due on the sales price of the vehicle, vessel, or aircraft.

Why don't I just become an aircraft dealer so I can buy aircraft without paying tax?

Everyone knows someone who routinely brags about this resale scheme. Well the following sections of law explain the truth.

6094.5. Improper use of certificate. Except as provided in Sections 6012.8 and 6012.9:

(a) Any person, including any officer or employee of a corporation, who gives a resale certificate for property which he or she knows at the time of purchase is not to be resold by him or her or the corporation in the regular course of business for the purpose of evading payment to the seller of the amount of the tax applicable to the transaction is guilty of a misdemeanor punishable as provided in Section 7153.

(b) Any person, including any officer or employee of a corporation, who gives a resale certificate for property which he or she knows at the time of purchase is not to be resold by him or her or the corporation in the regular course of business is liable to the state for the amount of tax that would be due if he or she had not given such resale certificate. In addition to the tax, the person shall be liable to the state for a penalty of 10 percent of the tax or five hundred dollars ($500) whichever is greater, for each purchase made for personal gain or to evade the payment of taxes.

Where should I take possession of my aircraft?

Definition of physical possession: This is where a party representing the seller (or the seller himself) and a person representing the buyer (or the buyer himself) transfer physical possession and control of the aircraft from the seller to the buyer.

An example of transferring physical possession would be when a car dealer hands the buyer the keys to his new car.

This question of "Where should I take possession of my aircraft?" comes up every day. The answer is always, "IT DEPENDS." In most cases, it depends on who the seller is and in what state you are planning to take physical possession of your aircraft. But our caution is that you should never take possession inside California.

This is not a case of my being coy with a potential client - it is the truth. There are many variables that add up to determine the correct answer. Our firm specializes in California sales and use tax so, all the data in this article is written from the perspective of an aircraft that may become subject to an assessment in California by virtue of registration with the FAA to an address in California or any subsequent use inside California within the first twelve months of ownership regardless of where it is registered.

Warning: You can be a resident of Oregon, take physical possession in a state other than California and register your aircraft to an out-of-California LLC or corporation and you still may be subject to tax in California.

Example of when the identity of the Seller determines which course of action may be required:

If the seller is an individual and the buyer is an individual, many states consider this an "occasional" or "casual" sale. This means the transaction is not subject to tax.

California does not recognize either an "occasional" or "casual" sale regarding an aircraft transaction. Arizona and Nevada grant the occasional sale status. Oregon is always a safe place to take possession because Oregon is one of the few states that have no sales and use tax. However, possession in a non-sales tax state does not exempt the sale from tax in the state of primary or subsequent use.

If the seller is a retailer of aircraft, regardless of which state the seller is located in, it will be a taxable transaction. The State of Nevada can assess sales tax against the seller if they detect continuing deliveries inside Nevada. Additionally, if the seller is a company that is located inside Nevada, it would be required to have a Nevada seller's permit, than the occasional or casual sale does not apply.

The state where physical possession occurs determines the set of rules that must be followed.

The primary thing that must be known about the rules in a particular state is that they all are different. They often use the same language but apply different meanings.

Some states have a "fly-away" rule. In general, this means that an out-of-state buyer can come into their state and take possession as long as they immediately leave. For example, a California buyer can go to Kansas and take possession of a new Cessna and not be subject to tax in Kansas as long as the aircraft is removed within ten days. A Kansas buyer can come into California and take possession without becoming subject to California tax as long as he immediately leaves. However, he must never bring the aircraft back inside California for the subsequent twelve months. A California resident can take possession inside Texas and take training in Texas before the aircraft is removed and still not be subject to Texas tax.

Some states allow a delay in leaving their state after taking initial possession for training and some also allow maintenance. In general, it is safest to take possession in a non-sales tax state if you are unsure of how the rules work in any given state.

The point of all this is that you must be careful when you decide where to take possession. Each state has its own rules and methods of enforcement. Trying to make a sales and use tax decision about an aircraft can be confusing because if your frame of reference is in California and you apply what you know about California to a different state like Nevada or Arizona you can trap yourself into owing tax.
Author Bio
Mr. Alston has written California sales tax articles for The Successful Accountant, Inflight USA, San Diego Business & Aviation Journal, Van Nuys Business & Aviation Journal and the Sacramento Business Journal. His newsletter called "TAX MATTERS" is dedicated to keeping California owners of aircraft informed about taxes. www.aeromarinetaxpros.com/taxmatters.htm

 
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The Injustice of California's Record Sealing Statute

 

 

By: Mathew Higbee

 

If you were arrested and tried for a crime where there was not even "reasonable cause" to believe that you committed the crime, you can be left with a criminal record that will prevent you from getting a job, housing, volunteering in your children's classroom, and other basic things that those with a clean criminal record can do. All this damage comes from a crime that you clearly did not commit.

California's record sealing statute, Penal Code section 851.8. is designed to prevent this gross injustice by allowing people who are found factually innocent to have all records of the arrest and court case sealed and destroyed. In most situations, the statute successfully balances state's right to preserve information against an individual's right to preserve their reputation. However, in a large number of situations, wrongfully-accused individuals are left with life-long damage caused by the records of arrests or court cases where they were factually innocent, but the statute does allow for the records to be sealed.
The California Department of Justice (CDOJ) keeps a complete criminal history on every person who has ever been arrested or charged in court with a criminal offense. This report is commonly referred as a rap sheet or background report. Among other things, the rap sheet shows the date, location, and reason for the arrest or court case. Even if a person is found innocent or if the charges are dropped, the record of the arrest and any court case is shown on the individual's rap sheet.

Unlike reports kept by credit bureaus or the Department of Motor Vehicles who only report negative history for a limited number of years, once something appears on the CDOJ rap sheet, it stays forever; unless the individual successfully petitions to have the record of the arrest and trial sealed. A successful petition to have a record sealed with wipe clean any evidence of the arrest or court case from the CDOJ rap sheet.

The CDOJ will only release the rap sheet to authorized state agencies for limited purposes or to the individual who requests their own rap sheet by filing paper, submitting fingerprints, and paying nominal fee (which can be waived for individuals who cannot afford the fee). Despite an apparent attempt to keep the rap sheet from public disclosure, raps sheets are widely used for private purposes. According to a 1996 study by the Society for Human Resource Management, 80 percent of mid-size to large employers conducted criminal background checks to screen potential employees. That is up 26 percent from 199?. Rap sheets are often required by a wide range of other individuals and organizations, from landlords to Little Leagues.

The information contained on rap sheets often determines which applicant gets such things as housing, employment, or the ability to interact with their children. There is no law in California that prevents these decisions being made on the basis of arrests or charges for which the person was factually innocent. Accordingly, it makes good public policy sense to have rap sheets be as accurate and free of information that would wrongly prejudice an individual. California's record sealing law gives most wrongfully accused clearing their rap sheet of negative information.
The procedure is put forth in section 851.8 states:
"in any case where a person has been arrested, and an accusatory pleading has been field, but where no conviction has occurred, the defendant may, at any time after dismissal of the action, petition the court which dismissed the action for a finding that the defendant is factually innocent of the charges for which the arrest was made."
If the individual is successful the statute states:

"The court shall also order the law enforcement agency having jurisdiction over the offense and the Department of Justice to request the destruction of any records of the arrest which they have given to any local, state, or federal agency, person or entity. Each state or local agency, person or entity within the State of California receiving such a request shall destroy its records of the arrest and the request to destroy such records, unless otherwise provided in this section."

One of the major problems is that that statute will not allow for the partial sealing of a record. Courts have refused to interpret PC 851.8 as allowing "surgical excision of certain parts of arrest records." So if an individual who is charged with two crimes is found factually innocent of one the crimes and guilty of the other, no part of the record be sealed. Consider this scenario that leads to an unjust and unexpected result:

A couple is having a heated argument. A neighbor who fears violence calls the police. When police arrive one of the suspects, who is in fit of rage, wrongfully accuses the other of sexual assault. The police arrest the accused for sexual assault and disturbing the peace. An hour later, the accuser calms down, loses the anger and recants the testimony to the police. The wrongful charge of sexual assault is never filed in court. However, the accused goes to court and pleads guilty to a misdemeanor of disturbing the peace and is sentenced with a $200 fine. Unbeknownst to this defendant, and most defendants, is that there is another sentence that they will have for life. Whenever some asks for a rap sheet, they will see that the defendant was arrested for a felony count of sexual assault. The defendant will have to spend a lifetime hoping people believe the explanation for the negative history on the rap sheet and dealing with the likelihood that it will cause unfair prejudice.
This unjust and unexpected result hurts the individual and society by placing large, life-long obstacles to a person reaching their personal and professional potential.

Author Bio
Mathew K. Higbee, Esq. is admitted to the California and Utah Bar Associations. He is the founder of RecordGone.com, a leading law firm in the area of expungement and record clearing. Higbee is a graduate of the University of Utah's S.J. Quinney College of Law.
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