I have a client who lives in CA and has an S-corp in Texas (organized in Texas & operates only in Texas) the business is a hotel, and so all of the property, income, and expenses are of course at the hotel in Texas. On the income tax return he used his home address in CA. So he received a notice from CA asking to show why he did not file a CA Corp tax return. We wrote a letter explaining that it's a hotel in Texas and he just used his home address as the address on the tax return because he gets most of his mail there.
So CA sent a response that is a set a questions to determine the filing requirement - most questions would prove that he doesn't have a CA filing requirement (no property, income or expenses in CA) but there are two questions that make me nervous - one question asks if a CA member signs checks, another asks if you maintain a bank account with a CA bank. Could simply having a CA bank account & a CA shareholder that can sign checks cause you to be required to file a CA return?
He reported the income from the K-1 on his personal return, paid CA tax on it - but it seems crazy to me that he might have to file a CA return - am I reading too much into those questions or is that how it works? He travels back & forth from Texas to CA all the time dealing with the hotel, and he opened the bank acct in CA because it was easier that way for him but there are locations of that bank near the hotel in Texas too.
