Mark Pestronk
Q: In your column in the Sept. 26, 2016 issue, "New California statute can help ICs who decide to incorporate," you covered a change in the California Seller of Travel law that allows one-owner S corporations and one-owner limited liability companies to be exempt from registration if they meet the other criteria that you had covered in that column. However, I recently heard that if you have to register because you don't meet those criteria it is now harder and more expensive to register. Is that correct? Also, I have a more fundamental question about the California law: If my agency is located outside California and sells just one ticket, cruise or tour a year to a Californian, are we technically required to register?
A: Let me start with the second question. It is correct that if you sell just one ticket, cruise or tour in a year to a Californian, you are required to register under the Seller of Travel law unless you meet the criteria for exemption. My guess is that there are probably many thousands of travel sellers outside California who are violating the law by not registering.
Getting registered has never been easy, and a new law that went into effect this year makes it even more difficult and expensive. Under this law, as part of your application for Seller of Travel registration, you must show that your business is already registered with the California secretary of state or the California Franchise Tax Board.
If you have a corporation or limited liability company, you will need to register with the secretary of state. This process is called "qualifying to do business in California," and the registration fee is $100.
But wait, there's more: You must have a registered agent in California to list on the application. A registered agent means an individual or company that is authorized to receive communications from the secretary of state's office and can receive lawsuits if you get sued in California.
If you don't know anyone in California who can serve as a registered agent, you can use a company that specializes in performing that role for out-of-state companies. You can find such an organization by Googling something like "find a registered agent in California."
The company that serves as your registered agent will charge an annual fee of about $100 for the service. Most of these companies can also help you with the application to qualify to do business in California, although they will also charge a fee for that service.
The truly bad news comes next. Once you are registered with the secretary of state, you come within the clutches of the taxing authorities in California. You will have to file an annual tax return with the Franchise Tax Board.
Even if you have no California business or income in a given year, you will have to pay a minimum annual tax of $800. If you have income from California, the tax rate is 1.5% of California net income.
If you should have already registered as a Seller of Travel some time ago, the penalty for late filing is $5 per day, up to a maximum of $500, in addition to the Seller of Travel registration fee of $100 and the annual renewal fee in the same amount.
So depending on how late you are filing, it could cost more than $1,500 just to get started and pay the first year's tax.