Are you being encouraged to form your California business entity in another state to avoid paying California income tax? Don't be foolish! Also, cyberspace is not out of state either! Don't be dumb!
Under California law, you can form a corporation or limited liability company to protect yourself from personal liability for obligations that are solely those of the entity. However, you cannot form a corporation to hide income earned in California. In addition, privacy laws do not protect fraudulent activities.
Business entities organized or incorporated in states other than California, but which are regularly transacting business inside California, must qualify or register with the California Secretary of State (SOS) in order to have legal standing in California. A company that is required to qualify or register to do business here may not maintain any lawsuit or defend itself in California courts until it qualifies or registers. Since it is not fully recognized as an “entity” in California, any contracts entered into by the nonqualified or nonregistered company can be voided by the other contracting party. However, such entities are still subject to tax and filing requirements even if they fail to qualify or register with the SOS.
Yes, if you conductbusiness over the internet, and live in California, you are doing business in California, not cyberspace! It is hard to believe people still fall for this one.
Check out this CA Franchise Tax Board Publication
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