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$800 Franchise Tax is Due Even if LLC is Canceled

Logo for Quora, where Dana Shulltz answered a question about California's $800 franchise taxThis post about California’s $800 franchise tax is based on my recent answer to a Quora question.

Q.: In California, can someone shut down an LLC before the $800 franchise tax is due on the 15th day of the 4th month?

A.: One can cancel a California limited liability company before the 15th day of the fourth month. However, such cancellation will not eliminate the obligation to pay the $800 annual franchise tax.

Form FTB 3522 states:

Every LLC that is doing business in California or that has articles of organization accepted or a certificate of registration issued by the SOS is subject to the $800 annual tax. The tax must be paid for each taxable year until a certificate of cancellation of registration or of articles of organization is filed with the SOS. Get FTB Pub. 1038, Guide to Dissolve, Surrender, or Cancel a California Business Entity, for more information.

FTB Publication 1038 states:

Your entity may avoid the minimum franchise or annual tax for current and subsequent taxable years if you meet all of the following requirements:

  • Timely file your final franchise or annual tax return, including extension, for the preceding taxable year.
  • Must cease doing or transacting business in California after the last day of the preceding taxable year.
  • File the appropriate documents with the SOS within 12 months of the filing date of your final tax return.

So, generally, once a California limited liability company is formed, at least one year’s franchise tax will be owed.

There is, however, a potential exception for an entity created during the last 15 days of the year. Please see Avoid Paying California $800 per Year … for 15 Days.

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.

Categories
Business Entities, Tax