When to Pay Annual Franchise Tax for a New LLC

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!

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.

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?

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.

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.

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

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.

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?

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

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.

 This was in CA by the way

 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.

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.

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.

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.

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

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

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.

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!

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