When to Pay Annual Franchise Tax for a New LLC

by Matthew Burgess on October 16, 2010

Every LLC that is doing business in California is subject to the $800 annual tax. This includes any LLC that has articles of organization issued by the Secretary of State, as well as LLC’s that are formed in other states and have been issued a certificate of registration to do business in California.

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.

When is the Annual LLC Tax Due?

This, directly from the SOS Form 3522 Instructions:

The annual LLC tax is due and payable by the 15th day of the 4th month after the beginning of the LLC’s taxable year (fiscal year) or April 15, 2010 (calendar year).

The first taxable year of an LLC begins when the LLC files its articles of organization with the SOS. The first taxable year of a foreign LLC begins when the LLC is organized in another state.

If the 15th day of the 4th month of an existing foreign LLC’s taxable year has passed before the foreign LLC commences business in California or registers with the SOS, the annual LLC tax should be paid immediately after commencing business or registering with the SOS.

CPAs have told us that a new LLC, formed in California, has 4 months from the formation date to pay the tax. To avoid possible late fees, I’d recommend checking with your CPA and/or the FTB to make sure this is still correct.

And what if an LLC is formed in another state, and then it registers to do business in California at a later date? Here’s the example given by the FTB:

Example: LLC1, a newly-formed calendar year taxpayer, organizes as an LLC in Delaware on June 1, 2010. LLC1 registers with the SOS on August 13, 2010, and begins doing business in California on August 14, 2010. Because LLC1’s initial taxable year began on June 1, 2010, the annual LLC tax is due by September 15, 2010 (the 15th day of the 4th month of the short-period taxable year). LLC1’s short-period (June 1, 2010-December 31, 2010) tax return is due by April 15, 2011. The annual tax payment for taxable year 2011, with form FTB 3522 also is due by April 15, 2011.

More Information from the California Franchise Tax Board:

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  • Sherpamld

    As of July 14, 2011: I spoke with California’s BOE and they indicated that they INCLUDE the month of LLC formation as THE FIRST MONTH. For example, an LLC formed on March 15 would have their taxes due on JUNE 15, not July 15 as I calculated…therefore, due to ambiguous wording, and it being July 15, I have to pay fees/penalties/interest!

  • http://www.matthewburgess.com/ Matthew Burgess

    Thanks for the comment. Couple things.

    First, you say that your spoke with the BOE. That would be the State Board of Equalization. Did you mean to say FTB, or Franchise Tax Board? The SBE (sometimes referred to as BOE) regulates seller’s permits and state sales tax.

    This blog article is only about the Minimum Annual Franchise Tax due to the California Franchise Tax Board.

    Second, in looking at the FTB tax, be very carefully about the wording from the FTB on the Form 3522 instruction and quoted in this post. The period is not calculated from the date of formation of the LLC. Rather, it relates to the beginning tax year.

    “The annual LLC tax is due and payable by the 15th day of the 4th month
    after the beginning of the LLC’s taxable year (fiscal year)…”

    and then:

    “If the 15th day of the 4th month of an existing foreign LLC’s taxable
    year has passed before the foreign LLC commences business in California
    or registers with the SOS, the annual LLC tax should be paid immediately
    after commencing business or registering with the SOS.”

    My reading of this shouldn’t be taken as the definitive word (i.e., talk to your tax advisor), but as I see this, the logic lays out like this: if your new LLC’s formation date is any time from the beginning of the year to April 15, you have until April 15 to pay. And if you formed after April 15, then you have to pay right away.

    So if you formed on Jan 5, you have more than 3 months to pay. If you formed on April 1, you have a couple weeks. If you formed after April 15, you better get that check in the mail pronto.

    I know: it seems strange and lacking of common sense. But we’re talking about government, and in particular, the California legislature.

  • Kmgranieri2

    does anyone know how to handle  the llc fee if you are not actually in business when you file the llc with the sos. We want to file our llc this year to apply for all our permits ec. as the llc. But we will not start doing business until the fall of next year. do we have to file and pay the llc tax ($800) even though we’re not in business this year?

  • Mrnoble

    Did you find out anything?  I have this same questions.  We filed the LLC with the State of CA in August 2011, but will not have any income until 2012.  However, we do wish to take deductions for start up expenses incurred in 2011.

  • Anonymous

    Hello Kmgranieri2 and mrnoble. You’re going to get the best and most qualified answer on these questions from a California accountant who knows what the Franchise Tax Board will allow.

    From what I’ve seen, I think its unlikely that you’ll be exempted from the annual minimum franchise tax. In most situations, the FTB sees the formation of the LLC as the starting point of business. I’ve never seen them make a distinction about actual level of active business activity.

    But like I said, talk to a CPA or EA about this. They might have a clever way to talk the FTB out of the fee in the first year.

  • Samcali

    if LLC was formed afer decmber 16th 2011 , do we have to pay Franchsie taxes for 2011 or are we exempt for 2011?? thanks

  • Anonymous

    We’ve asked several reputable California CPAs about this, and got the same answer from them all. We’ll post it as a new blog post shortly, so watch for it at the top of the blog.

  • Mypom01

    If a resident of NY with a NY LLC sells a shirt to a CA resident via an online order made by the CA resident with the NY LLC, does that activity subject the NY LLC to the CA Franchise Tax or Franchise Tax for any other state except NY?

  • den.m bar

    had the same question… this website pretty much answered.
    http://www.legalzoom.com/llc-faq/llc-operating-costs.html 

    “California: A $20 reporting fee and a statement of information are required 90 days after formation and then every two years. An annual $800 LLC tax is due 75 days after formation and every year thereafter. There is a minimum annual fee of $865 if the LLC’s net income exceeds $250,000.”

    basically 75 days after you formed your llc

  • 11ED

    I formed on Oct. 21st 2010 and started business January of 2011.  I thought I just had to pay the 2011 fee and I’d be good.  Now I found out in 2012 that I should have filed a 2010 return AND paid the $800 fee, and now i have late fees PER member, so its just not good at all.  

    They said if I had waited to form until December 17th, then I wouldn’t have had to pay the $800 for 2010….

    So, I’m screwed, but hopefully this message will help someone else not to get screwed too.

  • 11ED

     This was in CA by the way

  • 11ED

     Check out my post, i was in the same boat.  Yes, you are still responsible for the annual fee from the time your company is officially formed with the state, doing business or not.

  • Guest

    So does this mean that you have to file a return on the year that you formed even if you hadn’t started business yet? I formed an LLC on March 2012 and understand I need to pay the $800 fee by June 2012. I haven’t started business yet and probably won’t until May or June.

    I’m not sure if I’m supposed to file quarterly or yearly for the LLC (as an individual?). I have a separate full time job, and my employer withholds a certain amount from my paycheck.

  • 11ED

    Yes I called them up and they said the $800 fee is for having the LLC registered, regardless of whether its doing any business or not, and that they they don’t pro-rate.

  • Mark

    Not an attorney, but I believe you are only subject if you have a physical business location in CA. If not, you would not need to.

  • http://www.AmericanFranchiseDream.com/new-franchise/ new franchise

    LLC is annual tax service used to pay annual tax of any business franchise. It must be paid for each tear.

  • Monstur70

    This post pretty much transcribed form 3522. I don’t feel it added any additional clarification of value.

  • http://www.cafranchiseopportunities.com/franchise-for-sale/ franchise for sale

    Thanks for sharing such a great information here. This is really good for the people knowing about tax because LCC tax service is useful for all the business franchise to pay annual tax.

  • Debbie P

    That is true actually.  I filed my LLC using LegalZoom and they told me if I delayed having the State file the Articles of Organization until after Dec 17th, I would avoid paying the $800 for 2012.  I am starting business in Feb 2013 so this worked for me.  The State of California stamped my papers on Dec 19th, 2012.  My $800 tax is not due until April 15th, 2014.  Yipppee!

  • Anonymous

    Debbie, as far as we understand it, LZ was right to tell you that if you file after 12/17/12, you may not be considered to have formed until 2013. But I want to add a few things. First, its not enough that your Articles of Organization are stamped after 12/17. You also have to not do business in the year 2012. So if you took any company action, like set up and paid payroll, you may be stuck with a 2012 formation year.

    Then, on the paying of the FTB minimum tax of $800. It is not our understanding that you have until April 2014. As we’ve been told by CPAs, it needs to be paid at the beginning of this year. See above: “The annual LLC tax is due and payable by the 15th day of the 4th month after the beginning of the LLC’s taxable year”.

    And I’ll add, as I’m sure LZ told you also, its always important that you consult with a qualified CPA, enrolled agent or attorney on this kind of matter. Especially now, when tax laws are all changing so much.

    Best of luck with the business!

    FS

  • raisins

    Hello,

    I found the following excerpt from this form: https://www.ftb.ca.gov/forms/misc/1060.pdf

    “Newly Incorporated or
    Qualified Corporations

    To compute the tax for your corporation’s first tax year,
    multiply your California net income by the appropriate
    tax rate. Your first tax year is not subject to the minimum
    franchise tax .

    After the first year, your tax is the larger of your California
    net income multiplied by the appropriate tax rate or the
    minimum franchise tax .”

    It says that your first tax year is not subject to the minimum franchise tax? Am I understanding this wrong, because I have not come across any blog that talks about this?

    Thank you

  • raisins

    And another mention of this
    http://mariettemartinez.com/2013/04/have-you-paid-your-california-800-minimum-franchise-tax/:

    “What if you started business in 2012 and did NOT pay $800 tax?

    California does NOT require newly incorporated or qualified corporations, including LLCs treated as corporations, to pay the minimum franchise tax in their first taxable year. This means payment was not required in 2012 but it is required in 2013.”

  • Anonymous

    As I understand it, the minimum franchise tax is waived in the first year for corporations, and not for LLCs in California. But these things can change, so please check with your CPA.

  • Jill

    If you formed your LLC in the last 3 months of the prior year. Do you have to pay the $800 by April 15th the next year?

  • chris

    Very confused here ….. so I filed my Articles of Organization on 2/21/14. Is the $800 due on 4/15/14 or 4/15/15?

  • Anonymous

    As always, check with your CPA. But in general, its safe to assume that LLC minimum franchise tax is due right away after you form, not a year later.

  • Anonymous

    Maybe even sooner. As we understand it (again, please check with your CPA, or call the FTB), its due “by the 15th day of the 4th month after the beginning of the LLC’s taxable year.” If you formed in the “prior year,” then that “prior year” is your taxable year. But, since you said it was formed in the last 3 months, then it clearly is AFTER April 15 of that year. So, this seems to pertain: “If the 15th day of the 4th month of an existing foreign LLC’s taxable
    year has passed before the foreign LLC commences business in California
    or registers with the SOS, the annual LLC tax should be paid immediately
    after commencing business or registering with the SOS.” Meaning, its due right away.

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