Overview of California Franchise Tax
California Franchise Tax is an annual tax for conducting business in California. Failure to pay will result in penalties up to 25% of the unpaid tax. If allowed to go on for years, interest accrues. Eventually, the Franchise Tax Board (FTB) will assess collection costs and file a lien.
Exemptions and Special Considerations
- 501(c)(3) organizations that have received charity exemptions from the state aren’t required to pay franchise tax.
Consequences of Non-Payment
The entity must pay whether fully active, inactive, operating at a loss, or files a return for less than 12 months. This holds for all business types, making this expense hard to escape.
Refunds and Offer in Compromise
You may receive a refund that’s different than expected due to changes or payment of past federal or state debts. California will forgive tax debt via an Offer in Compromise – an agreement between authorities and the taxpayer to settle for less than owed. Not everyone qualifies.
Allow at least 8 weeks to receive a refund check.