[CPA2BEE]

Hi all,

I have a situation that is a bit out of my scope and need some advice. Say a 100% owner of a California S-Corp lives in North Carolina. The business completely operates in California. The owner and one other employee are on payroll, the other employee lives in California. The owner moved to NC from CA in 2016 and paid CA payroll taxes in 2016. He is wondering if he should switch his payroll taxes to North Carolina for 2017 or keep it under California? And also if there are any issues with switch states given his situation, or not switching states? Again, an owner of a California S-Corp that completely operates in CA, living in North Carolina.

The obvious answer is that NC payroll taxes are cheaper than CA, so switch to NC. However, since there is still a CA employee on payroll, this means the company must add another state return to their quarterly payroll returns which could result in higher costs. And also if his W-2 is taxed under North Carolina, doesn’t this mean he would have to add a NC state return to his individual tax return – which also results in higher costs?

This is a bit complicated for me, and I’m wondering if there are any experienced people out there who can help. Any advice is appreciated, thanks!

CA CPA - est. Dec 2016

FAR - 80
AUD - 82
BEC - 80
REG - 85

ETHICS - 90
EXPERIENCE - COMPLETE
Application for California license mailed 8/4/2016

[KaliKingz]

Your client should be paying payroll taxes from the state he works out of.

He will need to file payroll tax returns for both CA and NC.

As a NC resident(I assume) he should be filing a NC tax return too. It he doesn't do it now, he will get hit with substantial penaties and interest once NC finds out that he hasn't filed tax returns with them.

Also, he may need to file NC tax returns for the S Corp. (if the situation was switched, CA would make home file in CA)

AUD - 81
BEC - 81
FAR - 86
REG - 90

Even when winning is illogical, losing still far form optional.
-T.I.

[aaronmo]

This is determined by state law…usually there is an offset between states that's similar in concept to how foreign tax credits work. You also have local taxes to consider.

AUD - 96
BEC - 84
FAR - 89
REG - 86

Aaron and always remember, YMMV

I profit from your CPE frustration. You're welcome.

[CPA2BEE]

Since he's the sole shareholder, would it be maybe be best to dissolve the CA corp and set them up as a NC corp?

CA CPA - est. Dec 2016

FAR - 80
AUD - 82
BEC - 80
REG - 85

ETHICS - 90
EXPERIENCE - COMPLETE
Application for California license mailed 8/4/2016

[KaliKingz]

NO! DO NOT DISSOLVE! This will cause a distribution of the assets…think of the tax ramifications. However, if no gain results, then this could work.

If you client can move the business to NC, it is best to talk to an attorney, so they can redomesticate the corp. if the s corp rents property in CA, then it may not be worth redomesticating the corp to NC.

A side note, if your client decides to redomesticate the corp, make sure you talk to the people that will do this for your client. I had a client who looked for someone cheaper than we advised and they liquidated the corp and set up a new corp in CA. He got F'ed big time on the distributions

AUD - 81
BEC - 81
FAR - 86
REG - 90

Even when winning is illogical, losing still far form optional.
-T.I.

[Author]

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