In this Article, we will give you a snapshot of the legal compliance requirement and associated fees required to register Limited Liability Company (LLC) in California and most importantly, maintain the status of an LLC, especially as a small business e-commerce start up.
In the United States, LLCs are registered on the state level, therefore you can register an LLC in any of the 50 States in the United States, including Washington DC.
You can check out the best states in the US to register your LLC as a small business e-commerce start-up, if you want to pay less State fees, less State imposed taxes and do less periodic paperwork in order to maintain your LLC.
In this Article, our focus is on California LLC. What cost should you expect to pay when you register an California LLC? What periodic filings requirements are imposed on California LLCs? What State taxes are levied on e-commerce small business start ups in California and what are the tax rates? What business permits are required to be obtained by e-commerce businesses in California, what’s the cost of these permits and are there any renewal requirements?
This Article presents you a snapshot, so you know what fees and legal compliance requirements to expect if you want to register an LLC for your e-commerce small business start up in California, operate with the required licenses and maintain your LLC status.
Business registration and compliance on California
- LLC Registration cost; the state fee for registering an LLC in California is $75. You can register your California LLC with Bizee for a service charge of $0 + the State fee.
- LLC registration Publishing requirement; No, LLCs in California are not required to publish their registration in a local newspaper.
- Has the Option to register as an Anonymous LLC; No, LLCs in California do not have the option to register as an anonymous LLC. Meaning that the business details of the LLC Owners are published on the California public records. The LLC can still maintain some privacy by using a virtual office address and not the Owners real addresses.
- DBA requirement; DBA is required if your LLC is operating under a different name than your LLC registered name. In California DBA is referred to as a “fictitious business name”. Cost of registering a fictitious business name in California varies by County, the fictitious business name length of approval is 5 years. You can register a fictitious business name in California online or outsource the registration of your California DBA (if needed) to Bizee
Annual Report filing requirement; yes, California LLCs have annual report filing requirements. The cost of filing California annual report is $100
You can file the California annual report yourself, you’ll need to visit the California Secretary of State website or you can outsource the filling of your annual returns to Bizee for a $99 service charge.
Annual Franchise tax filing and compliance in California
- State Franchise tax requirement ; yes, the cost of filling Franchise tax for LLCs in California is $800. You can learn more about the California Franchise tax.
Annual State income tax filing and compliance in California
State income tax requirement; California has a progressive state individual income tax, with rates ranging from 1.00 percent to 13.30 percent. California has a 8.84 percent corporate income tax rate.
- Who files State income tax; LLCs by default are passed through entities meaning that tax obligation passes through to the individuals who own the LLC. Therefore an LLC with a default tax status pays the individual state income tax. Interestingly, if the individuals behind the LLC are not resident in the state and do not have state source income (a dependent agent in the state), then they are not required to pay “individual State income tax”.
If the LLC owners are resident in the State or have State source income (a dependent agent in the state), then the LLC Owners are required to pay “individual State income tax”.
If the LLC has elected to be taxed as a corporation (C-corp), then the LLC is required to pay “Corporate State income tax”.
- How to file state income tax; You can file your California State income tax by yourself. You will need to visit the State website. Alternatively, we recommend using the Service of a Certified Public Accountant (CPA), through H&R Block to file your state income tax.
Periodic Sales tax filing and compliance in California.
- Sales tax requirement; In California, there is a state sales tax rate of 7.25 percent, a maximum local sales tax rate of 2.50 percent, resulting in an average combined state and local sales tax rate of 8.82 percent.
- Sales tax nexus; Sales tax nexus is the state-defined threshold between a Seller and a state, which when reached makes it obligatory for the Seller to register for a Seller permit in the state, charge sales tax to customers in the state and remit the sales tax to the State Government.
Generally, there is the “physical sales tax nexus” and “economic sales tax nexus”.
Physical sales tax nexus is reached when the Seller had physical presence in the state (i.e have an office address, a warehouse etc).
In most States, “economic sales tax nexus” is reached when a Seller makes up to 200 transactions or $100,000 in sales in a State.
It’s important to note that, when you register your LLC in the State of California (which generally requires that you have a registered business address in California), you automatically meet the physical sales tax nexus and will be required to obtain a Sales tax permit in California, charge applicable sales tax rates to customers in California and remit sales tax to the California State Government.
- Sales tax permit; It costs $0 to register for a California California seller’s permit, but a security deposit may be required. California Sales tax permits are valid as long as the Business is in Operation.
- Reseller/Resale Certificate; Businesses who purchase products from their suppliers for the purpose of reselling those products to their customers can make sales tax free purchases from their suppliers if they have a resale certificate.
This means that Resale businesses can get cheaper product prices from their suppliers (that is product prices without sales tax included) which can help these Businesses have a higher profit margin and/or maintain competitive selling prices to their Customers.
Generally, suppliers will charge the sales tax rate applicable in the State where the product is to be delivered unless the business presents to the supplier a Resale Certificate (also called a Reseller Certificate).
The Resale certificate must be valid and acceptable in the state where the product is to be delivered.
Businesses can present any of the below listed Resale certificates to suppliers if they want to make sales tax free purchases for product delivery to a California address.
- General resale certificate | CDTFA-230
- MTC Uniform Sales & Use Tax Resale Certificate (The MTC form serves as a uniform resale certificate for various states, streamlining the process by replacing the need for multiple state-specific resale forms when dealing with your supplier.)
Note; California does not accept out-of-State Seller ID.
This means that Resale Businesses seeking sales-tax-free purchases in California must have an California Seller ID ( i.e Register for an California Sale Tax Permit and have an California Sales Tax permit ID). If they choose to use the MTC uniform resale certificate and wish to indicate California as the resale state, they must furnish their California Seller ID on the MTC form.
In California, A blanket Resale certificate (This means that the resale certificate is kept on file by the Supplier to cover multiple purchase transactions between a specific Supplier and Reseller) appears to not have an expiration date.
Conclusion
This Article shows you a snapshot of the legal fillings and compliance requirements for LLCs that are registered in Alabama, specifically for LLCs that want to carry on the business of selling and especially for small e-commerce start up LLCs that are registered in California.
If you are wondering what might be the best State in the United States to register your small business (especially if you are a reseller or an e-commerce business), we have written this Article, where we go over our most recommended states for registering a business in the United States, if you want to pay less LLC filing and legal compliance fees, if you want less state imposed taxes and if you want to do less periodic legal paperwork required to maintain your LLC status.
