Entity structure on out-of-state rentals and no CA franchise tax?

[Rob C.]

This topic is just in regard to California residents with properties *outside* of California. Assume a California resident sets up an out-of-state trust, which in turn is the only member (and manager) of an out-of-state LLC that holds out-of-state rental property. Is there any reason to believe that the California taxpayer in this case will be required to pay the annual $800 minimum franchise tax to California?

There is so much mixed information out there on the CA franchise tax, so it would be really helpful if folks could weigh in along with any authoritative sources of information, e.g. tax code / legislation, previous court cases, or even FTB publications. I've read through quite a bit of those sources myself and have yet to find anything suggesting that the minimum franchise tax would be assessed on this kind of entity structure. And no one I've spoken to has been able to offer a compelling argument otherwise. Yet many on BP have claimed in other threads that there’s no getting around it as a California resident. Obvious disclaimer: I'm not an attorney or accountant. I'm just a dude with an inclination to sort through mixed messages until I get the story straight. And I fully admit I could be missing something- am I?  

[Lynnette E.]

Originally posted by @Rob C.:

I’m surprised by how idle this thread has become. @Lynnette E. and @Greg O'Brien, I hope you didn’t interpret my previous questions as rhetorical. I’m genuinely interested in understanding where you’re coming from.

@Katie Lepore - are you able to weigh in on how your published opinion reconciles with the situation / structure I’ve described?

@Eamonn McElroy and @Basit Siddiqi - since you seemed certain at the outset of the previous/removed thread that the franchise tax would be owed, it’d be great to hear your elaboration. Also, since that thread wasn’t nearly as specific as this one when you commented, I’m curious if the additional context changes the matter in your mind at all. I’m sure that as accountants you’re more familiar with the tax code than most and it would be great to understand which parts support your opinions

 I took your comments as you have already decided what you want to and are going to do.  You are looking for someone to agree with what you want to do.  I am not that person.  I have worked with Trusts for many years, decades.  I am pretty confident in how Trusts work and what they do not do.  

I also had fun and games with the CA Franchise tax board a few years ago.  They are HARD!  My case had nothing to do with a Trust, but I moved from CA, registered my vehicle in my new state, sent CA the 'I moved and registered my car in the new state form' which the DMV lost or at least did not process.  Eventually the FTB wanted the money for my vehicle registration and late fees.  They sent mail demanding money to my new house, so they knew where I lived and it was not in CA and they could have checked and saw that the vehicle was registered in my new state.  I sent them many letters showing I moved, sold my house before the registration was due, reregistered in the new state before the CA one expired and within days of moving, sent in the form...still they wanted a few years worth of registration and penalties!  I only got it solved by writing to the Director of the DMV, and sending him all the information.  I received a letter back from the director saying they fixed it, sorry, and they did!  FTB was like a pit bull, just give us money and we will let go!  No reasoning with them at all.

I won't tell you want you want to hear, but what you need to hear, and there are already many people who have told you the same thing.  So I did not see any reason to continue with the thread.