When Is the California Franchise Tax Due?

The California Franchise Tax is an annual levy imposed on various business entities for the privilege of operating or doing business within the state. This tax functions as a fee to exist in California, distinct from income taxes. It applies regardless of a business’s activity level or profitability.

Entities Subject to Franchise Tax and General Due Dates

Most business entities registered or doing business in California are subject to the annual franchise tax. This includes C corporations, S corporations, Limited Liability Companies (LLCs), Limited Partnerships (LPs), and Limited Liability Partnerships (LLPs). Sole proprietorships and general partnerships are typically exempt from this tax because they do not register with the California Secretary of State in the same manner.

The minimum annual franchise tax for most entities is $800. For corporations, this $800 is a minimum; they pay either $800 or a percentage of their net income, whichever amount is greater. The general annual due date for this tax is the 15th day of the fourth month after the close of the entity’s taxable year, which for calendar year filers is April 15th.

LLCs may also face additional fees based on their total California gross receipts if those receipts exceed $250,000, which are separate from the $800 minimum annual tax. This additional LLC fee is typically estimated and paid by the 15th day of the sixth month of the current tax year.

Specific Due Dates and Filing Requirements

Specific circumstances can alter the standard due dates for the California Franchise Tax. For newly formed or registered entities, the first annual tax payment is generally due by the 15th day of the fourth month after their incorporation or registration date. For example, an LLC formed in June would have its first $800 annual tax due in October.

Corporations incorporated or qualified on or after January 1, 2000, are not required to pay the minimum franchise tax in their first taxable year. Instead, they are liable for the applicable tax rate on their net income. However, the $800 minimum tax applies from their second taxable year onward.

Entities that dissolve, withdraw, or cancel their registration in California must file a final return. The due dates for these final returns depend on when the dissolution or withdrawal occurs, often aligning with the normal filing deadlines for the period leading up to the cessation of business. For entities with a short accounting period, such as those changing their fiscal year, the return is due on the 15th day of the fourth month after the close of that short taxable year, consistent with federal requirements.

Extensions for Filing and Payment

Businesses can obtain an extension to file their California Franchise Tax return if they need more time to prepare their documentation. For most entities, this automatic extension period is typically six or seven months. For example, a calendar year C corporation would receive an extension until October 15th.

It is important to understand that an extension to file a tax return does not extend the time to pay the tax owed. Any estimated tax liability must still be paid by the original due date to avoid penalties.

Consequences of Late Filing or Payment

Failing to meet California Franchise Tax deadlines can result in various penalties and interest. A late filing penalty may be imposed at 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. There is also a late payment penalty of 5% of the unpaid tax, plus 0.5% of the unpaid tax for each month or part of a month it remains unpaid, up to a maximum of 25%. Interest also accrues on any unpaid tax and penalties from the original due date until paid.

Beyond monetary penalties, the Franchise Tax Board (FTB) can take administrative actions, such as suspending or forfeiting a business entity’s corporate powers, rights, and privileges. A suspended entity cannot legally conduct business, sell property, file or defend a lawsuit, or even maintain its business name, which can severely impact operations. To revive a suspended entity, all past due returns must be filed, and all outstanding taxes, penalties, and fees must be paid.

Methods for Payment and Filing

Businesses have several practical methods for submitting their California Franchise Tax returns and making payments. Online filing is a common option through the Franchise Tax Board’s (FTB) Web Pay service or tax preparation software.

Electronic payment options include using a bank account for direct debit or paying with a credit card, though credit card payments may incur a service fee from a third-party processor. Electronic Funds Transfer (EFT) may be mandatory for certain corporations with large payment thresholds. Additionally, taxpayers can generally mail physical returns along with checks or money orders to the FTB. Regardless of the method chosen, it is important to keep records of submission for compliance purposes.