Avoid Paying California $800 per Year … for 15 Days
The California $800 per year minimum franchise tax applies to both corporations and limited liability companies. Many people do not realize, however, that the tax can be avoided – at least, for a short time.
As explained in Franchise Tax Board Publications 1060 (for corporations) and 3556 (for LLCs), there is a “15-day rule” or “15-day exception” stating that the minimum franchise tax need not be paid for an initial tax year if:
- The corporation or LLC was formed (Articles filed with the Secretary of State) during the last 15 days of the entity’s tax year, and
- The entity conducted no business during that period.
So, if an entity has a tax year ending December 31 (as most do), then it can be formed on December 17 or later, and it will not have to pay the California $800 minimum franchise tax until the following year.
Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Business Entities, Tax
11/16/2012 | 8:11 pm Permalink
Would this be applicable for startups planning to incorporate in Delaware and have their headquarters in California? Or would it be wise to wait to incorporate after Jan 1st of next year. I assume you would still need to file an annual report in Delaware and pay the franchise tax for 2012 if you incorporate during the time period of Dec 17th – 31st. Though you would still save and not pay the $800 to the CA franchise tax board.
11/16/2012 | 9:45 pm Permalink
The 15-day Rule applies to foreign entities that qualify in CA as well as entities that are formed in CA.