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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4229
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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I want to operate 2 LLCs. One in California, and one in Nevada

Resolved Question:

I want to operate 2 LLC's. One in California, and one in Nevada as 2 separate entities.

Nevada customers would purchase goods from the California LLC.
California customers (and all other non-NV) would purchase goods from the Nevada LLC.

Merchandise would be shipped across state lines. CA-LLC would sell "wholesale" to the NV-LLC for CA customers and visa versa with invoices, etc. Thus no sales tax would ever be collected.

Profits from both LLC's would flow into me personally.

Is this legal for me personally to "own" both LLC's, however have them operate separately invoicing each other?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

Hi, I can help with thos

NPVAdvisor :

"this."

Customer:

hi there

Customer:

did you have questions for me?

Customer:

hello

NPVAdvisor :

Just wanted to lay it out for you .... let's start here:

NPVAdvisor :

Title 15 of the US code (15 U.S.C. §381), says that states can't imposing a tax on, or measured by, net income when an entity’s only connection with the state is the solicitation of orders for sales of tangible personal property, ...



as long as orders are accepted and shipped or delivered from outside the state.



BUT, this offers no protection from sales tax, franchise tax, gross revenue tax, business opportunity tax or single business tax.

Customer:

OK

Customer:

So is it legal for a CA LLC to ship to a Nevada resident? And for a NV LLC to ship to a California resident? Both not paying tax? Both LLCs owned by me?

Customer:

Hello?

Customer:

I don't have a lot of time to sit here, I'd appreciate an answer? I have to go soon.

Customer: replied 1 year ago.
Relist: Incomplete answer.
Expert in chat but not chatting. No real answer given.
Expert:  Lane replied 1 year ago.
Sorry someone stepped-in and locked the question for a minute there

In Wisconsin Department of Revenue v. William Wrigley, Jr. (CoXXXXX 2447 (1992)), the Court held that the “solicitation” of orders includes “any explicit verbal request for orders and any speech or conduct that implicitly invites an order"

So the line is drawn between just soliciting and actually selling (please don't shoot the messenger here) but you're selling

Here's a list of what is protected (no sales tax) and isn't protected (sales tax applies)



The Court determined that the following activities, among others, were permitted under 86-272 and would not subject the taxpayer to income tax in a jurisdiction:

  • Provision of company cars,
  • Provision of stock of free samples,
  • Recruitment or training of sales representative,
  • Setting up display packs and assisting with retail display,
  • Use of hotels or homes for sales meetings,
  • Intervention with credit disputes,
  • Maintenance of non-reimbursed home office by in-state employee.

These activities were all considered to be connected to the process of solicitation of sales.

On the other hand, the following activities were considered to exceed the mere solicitation of sales and could subject the taxpayer to income tax within the jurisdiction:

  • Maintenance of office within state,
  • Replacing spoiled products,
  • Providing technical assistance,
  • Repairing products,
  • Direct sales of products

Here' an excellent article by Mary Bernard that explains it all:

http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2007/CorpTax/StateLines.jsp

Hopefully you'll rate my answer on its thoroughness and accuracy, rather than on any good news/bad news content.

Hopefully having all the facts will help you to "see around some corners"



Hope this helps

Lane

If this HAS given you enough information, I would appreciate either an “accept” or a feedback rating of 3 (OK) or better. That's the only way they will pay us here. HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Expert:  Lane replied 1 year ago.

I hope you'll remove the bad rating ou gave me, as it affects both my ratings and keeps me from being paid for my work.

Again the question was (all of a sudden) locked by someone else (a Moderator here, by the name of Wendy)

Let me know what I need to do to make you na satisfied customer.

Again the court's holding in Wrigley drives the answer

Let me know

Lane
Expert:  Lane replied 1 year ago.
As a follow-up ... found this:

Statute providing a partial sales and use tax exemption for certain vehicles engaged in interstate and foreign commerce is applicable to vehicles of carriers, regardless of whether or not they are common carriers. F.S.A. § 212.08

What you'll see time and again is that companies will try to calssify themselves as one of the exempted entities, like common carriers.

But simple direct sales are never exempted.

Your idea won't work

I'd apprecaite you updating the rating
Customer: replied 1 year ago.

I promise to update the rating once we're done.

Expert:  Lane replied 1 year ago.


Sure..

How can I help?

(I reallydon't know why the moderator intervened, but now we'll have to continue in Q&A mode)

We can still continue the dialoue, however, just not in real time

What are you thinking?

Lane
Customer: replied 1 year ago.

OK so I'm not worried (yet) of the income tax side. I'm worried about the sales tax.


 


I know it's legal for me to own 2 LLCs, one in CA and one in NV, if one was selling "diamonds", and the other selling "cell phones". Out of state customers are not charged tax. In state is charged sales tax.


 


But let's say both sell diamonds. Can I sell diamonds from NV to California residents (shipped), and sell diamonds also from CA to Nevada residents (shipped) and not collect sales tax from either one?


 


So for example, a Customer is located in CA. Merchandise is in CA. CA-LLC invoices and ships merchandise to NV-LLC. NV-LLC invoices and ships merchandise to customer. Therefor no sales tax is collected. Is that legal?

Expert:  Lane replied 1 year ago.

No my answer was regarding sales taxes.

The issue was that Income tax IS protected.

But sales tax is not.

"Under Public Law 86-272 (15 U.S.C. §381), states are prohibited from imposing a tax on, or measured by, net income when an entity’s only connection with the state is the solicitation of orders for sales of tangible personal property, and such orders are accepted and shipped or delivered from outside the state. However, this does not offer any protection from sales tax, franchise tax, gross revenue tax, business opportunity tax or single business tax.

References
Business Across State Lines. (n.d.). Retrieved from http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2007/CorpTax/StateLines.jsp
Expert:  Lane replied 1 year ago.

Companies have been trying to do what you're thinking for years.

The respective state taxiing authorities will apply the doctrine of substance over form and say that you're are doing this by design (just to escape the sales taxes).

There would be no other reason to set up two different LLCs.

Therefore, not only will this be disallowed by Franchise Board AND NV dept of revenue, you COULD be looking at a charge of tax evasion (rather than just mistake), where they will try to show that you did with with intent, knowledge, purpose.

Don't try it

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4229
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.

Google substance over form.

Maybe that will illuminate

Lane
Expert:  Lane replied 1 year ago.

Thanks for the update, Yosef.

On the INCOME side you're fine .. the law protects you there .. as your LLC is a pass through, you'll pay federal and CA income tax .

And the case law protects you there (although there's not much need, as NV doesn't have a state income tax).


Sales taxes, however,(especially with so many of the state's budgets in the bad shape they're in now), have been the subject heightened scrutiny in the last several years.

Best of luck though ... keep thinkin'

Lane

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Lane
Lane
Tax Professional
4229 Satisfied Customers
Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986