California Business Portal

Is my corporation subject to franchise tax or income tax?

Any corporation "doing business" in California is subject to the minimum franchise tax even if it is not qualified with the California Secretary of State (SOS). "Doing Business" means actively engaging in any transaction for the purpose of financial gain. For taxable years beginning on or after January 1, 2012, the law was changed to also include taxpayers who satisfy any of the following conditions, as doing business in California:
  • The taxpayer actively engages in any transaction in California for the purpose of financial or pecuniary gain or profit.
  • The taxpayer is organized or commercially domiciled in California.
  • If the taxpayer’s sales, real and tangible personal property, or the amount paid in California by the taxpayer for compensation exceeds threshold amount. Threshold amounts are “indexed” each year by adjusting them to reflect changes in the California Consumer Price Index (CPI). 

Furthermore, to determine the amount of the taxpayer’s sales, property, and payroll for doing business purposes, include the taxpayer’s pro rata share of sales, property, and payroll from partnerships. Limited liability companies are treated as partnerships, and S Corporations. 

If you qualified with the SOS, your corporation is subject to the franchise tax until you dissolve your corporation.

Your corporation is subject to corporate income tax if it is not qualified with the SOS and is not 'doing business' in California but derives income from sources within California. For example, if your corporation is a limited partner in a limited partnership doing business in California, your corporation would be subject to corporate income tax. Unincorporated associations are also subject to corporation income tax.

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