Property managers will soon be collecting taxes on behalf of California against non residents.

This should create some very interesting issues.

Nonresident Property Owner Withholding: “Q 1. Who is a California nonresident property owner subject to withholding?

A Nonresident owners include the following:

. Individuals who reside outside of California,
. Corporations, Partnerships and LLCs who do not have a permanent place of business in California or who are not qualified by the Secretary of State to do business in California, or
. Estates and trusts who are nonresidents of California.

Q 2. Who is exempt from withholding?

A Those persons or entities exempt from withholding include the following:

. California residents,
. Corporations, Partnerships and LLCs qualified to business in California or who have a permanent place of business in California,
. Estates where the deceased was a California resident at the time of death,
. Nonresidents when the payments do not exceed $1,500 in a calendar year,
. Tax exempt organizations,
. California nongrantor trusts,
. A nonresident owner who has received either a Waiver or Reduced Withholding Exemption from the FTB.

NOTE: One fairly simple method for nonresident owners to be exempt from withholding is for them to form a California Corporation, Partnership, or LLC, or to have their foreign (out-of-state) Corporation, Partnership, or LLC qualified to do business in California with the Secretary of State. Depending on the income generated by the rental property, the cost of forming and maintaining such an entity may be justified to avoid withholding.”