Reminder of Recent California Tax Law Change
A significant change to the California Revenue and Taxation Code was made as part of California Assembly Bill (AB) 85. California law imposes an annual minimum franchise tax of $800 on every corporation and an annual tax of $800 on every Limited Liability Company (LLC), Limited Liability Partnership (LLP), and Limited Partnership (LP).
Under AB 85, LLCs, LLPs, and LPs that organize, register, or file with the California Secretary of State on or after January 1, 2021, and prior to January 1, 2024, will have their initial, annual/minimum tax of $800 waived. According to the legislative text, “these taxes may stifle economic growth and job creation and may inhibit the formation of many small businesses.” Now this is a California that I can finally get on board with! 
The California Franchise Tax Board’s press release on AB 85 also took some time to address the impact of legislation on the “15-day rule.” The 15-day rule is a set of provisions that provide relief to corporations, LLCs, LLPs, and LPs from the general requirement to pay the annual/minimum tax. A business entity is not subject to the $800 annual/minimum tax if the entity did not conduct business in the state during the taxable year and the taxable year was 15 days or less.
“Entities taking advantage of the 15-day rule by registering on December 17, 2020, and on or before December 31, 2020, are not eligible for the first year tax exemption, regardless of whether the 15-day rule would apply for that short period. Only LLCs, LLPs, or LPs that organize, register, or file after January 1, 2021, are eligible for the first taxable year annual tax exemption.”
California Franchise Tax Board, Tax News
Source: California Legislative Information, California Franchise Tax Board (ftb.ca.gov)
- Carey M. Heyman, CPA
- Managing Principal of Industry - Real Estate
- CliftonLarsonAllen LLP
- Century City (Los Angeles)
Carey is the Managing Principal of the Real Estate Industry at CLA. He is a trusted advisor with close to 20 years of experience providing accounting, assurance, tax, and consulting services to real estate industry owners, operators, family offices, developers and syndicators. Carey has a strong track record of helping clients build and retain capital by leveraging tax- and cost-saving strategies and employing tax credits and incentives. He also consults with high net worth individuals, large family groups, and owners of closely-held businesses on all aspects of tax planning, estate planning, and retirement planning.
Comments are closed.