The onerous $800 CA business franchise tax

Richard Rider, Chairman, San Diego Tax FightersRichard Rider, Chairman, San Diego Tax Fighters 1 Comment

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http://open.salon.com/blog/richard_rider/2011/03/02/the_onerous_800_ca_business_franchise_tax

California has a nasty business tax that is seldom discussed.  Imagine this:

The annual CA state income tax on a corporation (no matter how tiny) that makes only $800 profit? $800.

Yes, they take it all. But wait.  It gets “better.”

The tax on a corporation that barely makes a one dollar profit? $800.

The tax on a personal corporation (LLC and sub-S included) that pays out earnings as salary and retains no money or profit? $800.

The tax on a corporation that LOSES money? Same $800.

An out-of-state corporation that does a SINGLE BUSINESS TRANSACTION in California?  You guessed it.  $800.

The tax on a nonprofit corporation OR ASSOCIATION that is not a “charitable 501(c)3” type organization? $800.

Yes, California is BY FAR the most anti-business state in the nation.  Comparisons of our California business taxes/climate with other states  normally ignore this jewel.

It’s labeled a “franchise tax.”  But in reality it is a high minimum state income tax.

As far as I can find, only one other state has such a tax — Oregon recently implemented a similar $150 minimum tax.  But then, Oregon has no sales tax!

The only meaningful exception is that a corporation is exempt during its first year.  I guess they want business people to settle into the corporate business structure before they drop this load on them.

Bills to lower or eliminate this evil tax have never made it through our wonderful state legislature.  And never will, I suspect.

UPDATE: Attorney David King pointed me to his excellent, more substantial 2009 column on this topic.  Sadly, he picked a far better title for the column as well:  California’s struggling small business extermination program

If you want to get angry all over again (but more informed), go to his website for the article:

http://sandiegonewsroom.com/news/index.php?option=com_content&view=article&id=14275:david-king&catid=55:legislative&Itemid=40

In a future blog, I’ll detail the OTHER little-known nasty California business tax — a gross receipts tax on LLC’s that can be FAR larger than this $800 franchise tax.

NOTE:  I’m not a corporate tax expert, so anyone having nuanced info on this topic should feel free to send me corrections and clarifications.

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    UPDATE: Attorney David King pointed me to his excellent, more substantial 2009 column on this topic. Sadly, he picked a far better title for the column as well: California’s struggling small business extermination program

    If you want to get angry all over again (but more informed), go to his website for the article:

    http://sandiegonewsroom.com/news/index.php?option=com_content&view=article&id=14275:david-king&catid=55:legislative&Itemid=40

    In a future blog, I’ll detail the OTHER little-known nasty California business tax — a gross receipts tax on LLC’s that can be FAR larger than this $800 franchise tax.

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