The California annual franchise tax is one of the costs of doing business in the Golden State. How much you pay and when depends on your type of business.
Find out more about Business Taxes
by Michelle Kaminsky, J.D.
Writer and editor Michelle earned a Juris Doctor degree from Temple University's Beasley School of Law in Philad.
Updated on: July 30, 2024 · 2 min read
The California annual franchise tax is exactly what it sounds like—a tax that the state's business owners must pay yearly. It is simply one of the costs of doing business if you choose to register your entity in California. The franchise tax is a special business tax required in California and about a dozen other U.S. states.
If your business is any of the types that offer limited liability—including limited liability company (LLC), S corporation, C corporation, limited partnerships (LP), or limited liability partnership (LLP)—it will be subject to the California annual franchise tax. Sole proprietorships, general partnerships, and tax-exempt nonprofits are not required to pay this tax.
At the time of publication, the yearly California franchise tax is $800 for all noncorporate entities subject to the tax. For corporations, the $800 figure is the minimum franchise tax due. The state requires corporations to pay either $800 or the corporation's net income multiplied by its applicable corporate tax rate, whichever is larger. You may pay the tax online, by mail, or in person at the California Franchise Tax Board Field Offices.
The due date for the annual franchise tax depends on the type of business entity involved:
Newly incorporated corporations are not required to pay the minimum franchise tax in their first year of operation. Further, businesses are not subject to the minimum tax if their tax year was 15 days or fewer and they did not conduct business during those days; the 15-day franchise tax exemption applies to LLCs as well as corporations.
Generally, however, the entity must pay a franchise tax whether the company is fully active, inactive, operating at a loss, or files a return for a period shorter than 12 months. This rule holds for all types of business entities subject to the franchise tax, making this business expense extremely difficult to escape.
While the above information provides a general overview of the California franchise tax, your best resource for complete information is the California Franchise Tax Board, the entity that levies and collects the tax. It has the most up-to-date information regarding the amount your business owes, amount of the minimum franchise tax, applicable deadlines, filing procedures, and any exemptions for which your business may qualify.
Find out more about Business TaxesThis article is for informational purposes. This content is not legal advice, it is the expression of the author and has not been evaluated by LegalZoom for accuracy or changes in the law.
You may also like
'Inc.' in a company name means the business is incorporated, but what does that entail, exactly? Here's everything you need to know about incorporating your business.
October 9, 2023 · 10min read
By knowing what other trademarks are out there, you will understand if there is room for the mark that you want to protect. It is better to find out early, so you can find a mark that will be easier to protect.
July 31, 2024 · 4min read
As a small business owner, you will be subject to many types of taxes in California. Here is an overview of the types of taxes you will encounter and the state income tax rates.
November 14, 2023 · 3min read
