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I have a client that is a NJ LLC that is registered in CA.

The NJ LLCs only activity...
I have a client that is a NJ LLC that is registered in CA. The NJ LLCs only activity was to invest in another LLC that is based in CA and we have reported all income from such as CA source income. The NJ LLC (registered in CA) sold its interest to a third party. Is the resulting capital gain taxed in CA?
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Answered in 1 minute by:
10/11/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,592
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Megan C :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

Megan C :

How are you today

Megan C :

The LLC based in CA is a CA asset. As such, if you dispose of that CA asset, then the sale is taxed in CA.

JACUSTOMER-8gc5ryso- :

I'm in NY and need to finish the return. Without CA research materials, the only answers I could find indicated a non resident individual selling an intangible asset wouldn't be subject to CA income, that an intangible sale is taxed at the individual's state level. Do you have some citation you can give me showing that the partnership asset, even if an intangible asset, if sold, would be taxed as CA source?

Megan C :

I did not realize it was intangible. I thought it to be an asset sale

Megan C :

Is it just a partnership interest?

Megan C :

With no hard assets?

JACUSTOMER-8gc5ryso- :

they sold their entire partnership interest. My confusion is that this was their only asset, and after all installments will close the llc. So I'm not sure if this fact set affects the taxable nature.

Megan C :

If the source is from California it's taxable in California

JACUSTOMER-8gc5ryso- :

Any citation or source you can steer me to?

Megan C :

I'm reading a book right now about the sale of partnership interest in California. Hold on for two minutes while I read. I will send you the link to the pages.

JACUSTOMER-8gc5ryso- :

thank you.

Megan C :

Was the LLC taxed as a corporation?

JACUSTOMER-8gc5ryso- :

no as a partnership.

Megan C :

okay so it was taxed individually

JACUSTOMER-8gc5ryso- :

the llc generated k-1s for its partners.

JACUSTOMER-8gc5ryso- :

there are ten investors.

Megan C :

Yes, I was just making sure because if the LLC was considered a corporation the tax situation would be different.

Megan C :

okay - the California Income tax manual states that the sale of a partnership interest is deemed a sale of intangible property, and is taxed in the state of residence of the partner

Megan C :

CLICK HERE

JACUSTOMER-8gc5ryso- :

okay, I read through it quickly and since my client is non corporate it is not CA source income. Thank you.

Megan C :

You're welcome :-) Glad I could help. Gotta love Google Books

Megan C :

Is there anything else I can assist you with tonight?

JACUSTOMER-8gc5ryso- :

no. thank you for your help

Megan C :

You're welcome. Before you leave, could you please rate my response as "excellent" so that I may receive credit for assisting you today

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,592
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
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Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

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