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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29579
Experience:  Taxes, Immigration, Labor Relations
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I'm working in california, myself and my friend who is

Customer Question

I'm working in california, myself and my friend who is presently working in Missouri are planning to setup an LLC. I will be the passive partner(on paper). Our operations are from india, nothing will be done here for atleast first 3 months. After that
we will be setting up an office. If we setup an llc in Missouri. For profit I make should I pay tax to Missouri or California?
Submitted: 2 years ago.
Category: Tax
Customer: replied 2 years ago.
Any update
Expert:  Lev replied 2 years ago.
Hi and welcome back to our site!
For state income tax purposes - the tax liability is based on both - the source of income and residency.
If that is an LLC with several member - for federal tax purposes - it will be taxed as a partnership.
If registered and operated out of Missouri - that will be income from MO sources - and will be taxable for that state.
However - a partnership doesn't pay income taxes - instead - all tax liability is passed to partners. So you as a partner will have income from MO sources - and it will be subject to MO state income tax - regardless if you are a nonresident.
On the other hand - because you are a resident of California - all your income - regardless of its source is taxable in CA.
So - in this situation - the same income is taxed for both states.
However - on your CA resident tax return - you will claim a credit for taxes paid to other states (MO in this situation) - thus effectively you will avoid double taxation of the same income.
Let me know if you need any clarification this matter.