California Franchise Tax

[mhlester]

Hi,

If a foreign corporation, not qualified to do business in California, does business in California in 2020, files a California franchise tax return and pays the minimum tax for 2020, does not do business in California 2021, but will do business in California in 2022, should it file a California return, apportioning all income out of California, and pay the minimum franchise tax for 2021?

Thanks, Michael

[Karl · Accepted solution]

I would recommend yes. CA rules are usually that the minimum franchise tax is owed if the entity even continues to exist.

That, and fighting FTB on this for all the notices you'll get will likely be more than $800 of yours and your client's stress and time.

[joshuabarksatlcs]

RE: should it file a California return, apportioning all income out of California, and pay the minimum franchise tax for 2021?

NOT merely recommended, but definitely yes.

CA corporate tax for year 1 is for the privilege of doing business in year 2.  See California Revenue & Tax Code Section 23151.

Then you may ask, how about the final year?  Section 23151.2 basically says the final year's franchise tax is for the privilege of dissolving or withdrawing.

BUT, the corporate tax for the first year is waived.  Who says CA is not business friendly? 

[mhlester]

Thank you, joshuabarksatics.

I am definitely going to file and pay the minimum franchise tax!

Michael