I'm in CA. I have an LLC that sells products across the US and Canada. How do I access 'CA Form Schedule R - Apportionment and Allocation of Income' in TurboTax?

[Anonymous]

I have the Home and Business version. CA Schedule R allows an LLC to state what income was generated in CA. It's a complicated form and I need TurboTax to help with it.

[Lisa995]

Are you a single member/sole proprietor LLC or have you elected to be treated as a corporation?

[Anonymous]

Single Member LLC. Disregarded. And if Schedule R does not apply to my LLC do I simply enter my self calculated sales in Form 568? At the moment Form 568 is self populating with my total sales.

[Rick19744]

You have a fairly complicated question since you indicate that you sell "across" the US and Canada.  What we also don't know is if you are filing tax returns in any of those additional states or Canada.  An additional complication you need to address is if whether you really need to complete this schedule or are all your sales "thrown back" to California based on your facts (which we don't have).

[Anonymous]

Apologies. When I say 'sell across' I mean that my single member LLC is only located in CA but I take orders and deliver to anywhere in the US and Canada. I therefore have assumed that I pay CA State tax on income I source from a CA only. In addition, from the Schedule R instructions,
'Partnerships and LLCs that are classified
as partnerships for tax purposes, with
income or loss from a trade or business
conducted within and outside California, must
apportion business income'

My LLC is not classified as a partnership so I believe the Schedule R does not apply to me and that is why Turbo Tax Home and Business doesn't need to address the Schedule R for my LLC.

[Anonymous]

Since my LLC is based in CA, and for example, I sell product to customers in CA and also in New York does this mean I have income 'sourced' in CA and New York, or only in CA since that's where payments are sent? (I'm trying to understand the definition of sourced.)

[Rick19744]

Sales sourcing can vary by state,however, the trend in sales allocation, is to attribute sales receipts to the place where the goods are destined to be delivered.  So in your case, if the sales are delivered to New York, they are New York sourced.

However, the overriding question still needs to be answered, just because you deliver to New York does this mean you have nexus in New York.  If you do, then you would need to file a return there as well.  If not, then the sales get thrown back to California.

Finally, you need to determine if the states you deliver to have an income tax or a pure franchise tax.  Only an income based tax is subject to possible exemption based on Public Law 86-272.  Franchise taxes are not bound by this federal law.

[Anonymous]

No nexus in New York or any other location. Only in CA.
5% of my sales are to customers in CA, 95% of my sales are to customers outside CA. So for the purposes of CA Form 568 do I only use the 5% of sales to CA customers? At the moment TurboTax is populating Form 568 with my total sales. In state and out of state.

[Lisa995]

You live in CA,  youre doing business in CA, CA is going to include all the income.   Does your income exceed the 250K limit that makes you liable for more than the $800 minimum annual LLC fee?  Is that what youre hoping to reduce?

[Anonymous]

Ok, that's just what I wanted to clarify. That CA uses total income, Thank you.

[Rick19744 · Accepted solution]

The first sentence of the instructions to Schedule R states "This schedule is used by all taxpayers who are required to apportion business income. Special instructions apply to individuals...."

See the attached instructions:https://www.ftb.ca.gov/forms/2015/15_100rins.pdf

I will also repeat my initial comment that this is probably a situation that is beyond this forum as there are many facts that are unknown.  State nexus (the requirement to file in a particular state) is very fact driven and no consistency between states.

The other item that needs to be considered and reviewed is whether you have the ability to take the position (or required) that Schedule R does not apply because all sales are really thrown back to California and taxed in California.  This requires a review of all the states that you sell to and whether or not you would be exempt under Public Law 86-272.

California rules allow allocation outside California only to states where companies are subject to tax. An entity is subject to tax in another state when “in that state it is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, or a corporate stock tax, or … that state has jurisdiction to subject the taxpayer to a net income tax regardless of whether, in fact, the state does or does not”.

Bottom line is there are too many unknown factors to provide clear advice on whether you need to complete Schedule R (or R-1, etc), or whether all your sales just get thrown back to California and Schedule R is moot as a result.