How to setup CA LLC owning property in AZ

Question

Hi all,

I am in the process of refinancing my AZ condo ( title in my and my wife's name). I would like to transfer title to a LLC at closing. Since we are California residents, what would the process be to setup a LLC to achieve this?.

Setup CA LLC & register that as a AZ foreign agent?. This route seems to be the best case scenario for future expansion to other US states.

Would appreciate all inputs into this

Katie Balatbat · Answer

@Venkat Vankipuram@Gash Nookala

California is generally more cumbersome than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will likely be deemed to be "doing business" in California and therefore likely subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will likely need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don’t buy CA property as a CA resident.

Be sure to tell your accountant that you may now need to file non-resident income tax returns in each state where you own property as well. CA taxes residents on worldwide income but may provide a credit for taxes paid to other states.

Most likely the state where the property is located is where lawsuits would be brought if they are something for personal injury like a trip and fall or something of that nature because the “cause of action” arose in that state. So even if you pick a state with stronger protections like WY or NV, the cause of action arose in the state where the tenant fell, so likely that the court where the accident happened would have jurisdiction.  Of course, with all things, the answers to all these matters will depend on the circumstances.

California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts.  It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC.  Also, the state of formation is likely where internal disputes would be brought among LLC members, so if you and a partner and/or spouse live in CA, you probably want to arbitrate in CA if the two of you had a disagreement.  But, that is not always the right answer and you should speak with someone familiar with your personal situation to get advice specific to you.

*This post is informational only and is not to be relied upon.  Readers are advised to seek professional advice.  This post does not create an attorney-client or CPA-client relationship.

Richard Bechtol · Answer

Hi Venkat,

You are correct in that because you are a CA resident you would still be liable for the $800 tax. There are some entities that are not taxed at the $800 rate. One is a Delaware Statutory Trust. I have used it for numerous CA residents to help them legally avoid the tax.

Gash Nookala · Answer

VenkatI am also interested in the same topic. I am looking for either Arizona or Texas and need to setup LLC. Please share what you get from this. I will also search and share.

Venkat Vankipuram · Answer

Hello Dennis,

Thanks for your response. But, as CA residents , wouldn't we be doing business in AZ, hence liable to pay that $800 annual fee to FTB anyway ?

Are you suggesting that by setting up an AZ LLC, we could skirt the $800 CA LLC fee? That's not how I understood it.

Would love to hear more clarifications on this topic

Dennis Maynard · Answer

Do you like paying taxes? CA charges a minimum of $800 per year for any LLC or Corporation. You are better off setting up an LLC in another state. I recommend you check with AZ about out of state LLC ownership, cost / fees, etc. Also chat with your accountant and maybe an attorney. Setting up an LLC is easy in other states as well. Just work through the process.