STATE OF CALIFORNIA FRANCHISE TAX BOARD

Contents
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Newly Formed or Qualified Corporations . . . . . . . . . . . 2 S Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Imposition of Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Minimum Franchise Tax . . . . . . . . . . . . . . . . . . . . . . . . . 3 Apportionment of Income . . . . . . . . . . . . . . . . . . . . . . . 3 Steps to Take . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Installment Due Dates and Amounts of Estimated Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Where to Get FTB Forms and Publications . . . . . . . . . . 6 Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 General Toll-Free Phone Service . . . . . . . . . . . . . . . . . . 7 To Get Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

FTB Publication 1060

Guide for Corporations Starting Business in California

General Information
This guide is intended to help you file your corporation’s first: • California Corporation Franchise or Income Tax Return (Form 100) or • California S Corporation Franchise or Income Tax Return (Form 100S) or • Bank and Corporation Estimated Tax Payment Voucher (Form 100-ES). It will help you: • understand the basis of the tax; • request forms and instructions; • file tax returns correctly; and • avoid unnecessary penalties and interest.

California Tax Forms on the Internet!
• Current year California forms, instructions, and publications. • Prior year California forms and instructions. • Frequently used forms that may be filled in electronically, printed out for submission, and saved for record keeping. • Answers to frequently asked tax questions. Access the FTB Website at www.ftb.ca.gov

California Tax Forms on CD-ROM!
Order FTB Pub. 1097, California Income Tax Forms on CD-ROM, and get: • Current year California and federal forms, instructions, and publications. • Prior year California forms and instructions. • Frequently used forms that may be filled in electronically, printed out for submission, and saved for record keeping. To order the CD-ROM, call (916) 845-7070

Water’s-Edge Filers – For information regarding filing a Water’s-Edge return in California, see Form 100W – California Franchise or Income Tax Return – Water’s-Edge Filers

gov. it shows a $4. you may base your corporation’s estimated tax payments on annualization to reduce or eliminate the estimated tax penalty. On April 15. 2001. 2002.000 loss and a $800 tax liability. an estimated tax penalty is due based on the tax of $557.ca. On its return for taxable year ending December 31. which it paid with the return. There is no minimum tax if you incorporated or qualified to do business in California on or after January 1. 2001. Newly Formed or Qualified Corporations The tax on your corporation’s first return is computed by multiplying your corporation’s California net income by its appropriate tax rate. Corporation A operated at a $3. call the Secretary of State. Fiscal Year — A period of 12 months ending on the last day of any month other than December. For more information regarding qualifying to conduct business in California. A federal S corporation doing business in California or having California source income is subject to California tax as an S corporation unless it made a timely California C corporation election. Prior year’s exception (Exception A) does not apply to the first tax return and you cannot use it to reduce or eliminate the estimated tax penalty. 2000. or visit their website at: www.gov . For taxable year ending December 31. 2001. the corporation makes an estimated tax payment of $800. When Corporation A files its tax return on March 15. For more information regarding the estimated tax computation.300 x 8. When the corporation files its tax return on March 15. 2001. However. Accounting Period — Calendar year or fiscal year used as the accounting period for which the corporation’s net income is computed. it shows $6. For more information on corporations. 2001. Corporation B did not make an estimate tax payment on April 15. Since Corporation B did not make any estimated tax payments. it owed $557 ($6.Definitions Corporation — An entity incorporated or qualified through the Secretary of State and/or doing business in California. the term corporation does not include banks. it will show zero on the “Tax Due” line of Form 100S. Corporation A makes an estimated tax payment of $800.84%) of tax. However. An estimated tax penalty is not due. at (916) 657-5448. Doing Business — Actively engaging in any transaction for the purpose of financial gain or profit. For the taxable year February 21 to December 31. • Foreign corporations that conduct business in California but are not qualified through the Secretary of State. 2002. or visit their website at: www. there is an S corporation tax at the corporate level in addition to the individual tax on pass-through income.300 of income. This includes: • All California domestic corporations. For purposes of this guide. your corporation must make estimated tax payments equal to 100% of the tax liability shown on the return for the second taxable year. Corporation A selects a calendar year end. Example 2: Corporation B incorporated in California on January 11. 2002. Calendar Year — A period of 12 months ending on December 31. Business Filings. • Foreign corporations that qualified to conduct business in California through the Secretary of State. 04-2001) S Corporations California has adopted most of the federal provisions for S corporations. Business Filings.5%. it will owe NO tax. at (916) 657-5448.000 loss and an $800 tax liability. The corporation must file Form 100 and pay at least the minimum franchise tax (if applicable) or S Corporation tax of 1.ss. Since the corporation made an $800 estimated tax payment. 1060 (REV. Since the corporation made an $800 estimated tax payment. Estimated tax: To avoid incurring an estimated tax penalty for the second taxable year. An estimated tax penalty is not due. On April 15. see the instructions for FTB Form 100ES – Corporation Estimated Tax. Page 2 FTB Pub. 2002.000 loss. On its tax return for taxable year ending December 31. Corporation B selected a calendar year end.ss. Financial corporations are not considered to be banks and are included in the term corporation. Taxable Year — Calendar year or fiscal year for which the tax is due.ca. Example 1: Corporation A incorporated with the California Secretary of State on February 21. it will show zero on the “Tax Due” line of the Form 100. 2001. it shows a $14. Imposition of Tax A franchise tax is imposed on businesses treated as a corporation in California. call the Secretary of State. The tax on your second and subsequent year tax returns is subject to the greater of the minimum franchise tax or your corporation’s California net income multiplied by its appropriate tax rate. 2002.

or FTB Notice 2000-8 for additional information.000 or total liability of $80. Corporation Estimated Tax. If the first accounting period is 15 days or less. whether or not a full 12 months. Therefore. if the corporation is inactive or operates at a loss during any taxable year. See Form 100 Booklet or Form 100S Booklet for more information. 04-2001) Page 3 . 1060 (REV. In addition. See Schedule R. its tax for the taxable year is the minimum tax. These payments should be made using Form 100-ES. or that is permitted or required by federal law to make a change in its accounting period or method without prior approval and does so. and received no income from. a corporation franchise tax return is due for the short period taxable year ending October 10. the corporation’s Articles of Incorporation would have to be filed in the case of: • a 28-day month — on the 14th day or after • a 29-day month — on the 15th day or after • a 30-day month — on the 16th day or after • a 31-day month — on the 17th day or after Example: Corporation ABC incorporated with the Secretary of State on October 10. For purposes of filing a corporation income tax return. 2001. Corporation Income Tax The corporation income tax is imposed on all corporations that derive income from sources within California but are not doing business in California. In your first tax return. if the corporation has an estimated tax liability of $20. 2001. a corporation that obtains federal approval to change its accounting period or method. sources within this state. 2002. qualified to do business. • Massachusetts trusts. Except for newly incorporated or qualified corporations. See Form 100 Booklet. and • real estate investment trusts. However. all corporations incorporated. See EFT requirement on page 4 for more information. Except in certain instances. However. Minimum Franchise Tax Except for newly incorporated or qualified corporations. However. and unless otherwise exempted by law. Form 100S Booklet. the term corporation is not limited to incorporated entities. as its accounting period. For a portion of a month to be disregarded under this rule. Franchise Tax Board approval is not required. the first accounting period cannot end more than 12 months after the date of incorporation or qualification in California. • business trusts. or doing business in California are subject to an annual minimum franchise tax. unless initiated or approved by the Franchise Tax Board. for more information. 2001 to October 31.The franchise tax is computed by multiplying the corporation’s current year taxable income by the appropriate tax rate. FTB Pub. See Form 100 Booklet or Form 100S Booklet for more information. Apportionment and Allocation of Income. Steps To Take A newly formed corporation in California is required to take the following actions: Convention and Trade Shows Corporations that are not incorporated under the laws of California and whose sole activities in this state during a taxable year are engaging in convention and trade show activities may not be subject to the $800 minimum franchise tax. it may be disregarded provided the corporation was not doing business in.000 it is required to make payments by Electronic Funds Transfer. unless exempt by law. on or before January 15. Step 2 — Paying Estimated Tax Apportionment of Income Corporations with business income attributable to sources both within and outside California are required to apportion such income. is deemed to have the Franchise Tax Board’s approval. except for certain inactive gold mining corporations and quicksilver mining corporations that pay a minimum franchise tax of $25 per year. the tax the corporation is required to pay cannot be less than the minimum franchise tax. One or more payments of estimated tax are required annually from every corporation. It elected a fiscal year ending October 31. Step 1 — Election of Annual Accounting Period and Method If you form a new corporation or qualify an existing corporation you must notify the Franchise Tax Board of its accounting period as soon as possible. the corporation may adopt any taxable year that meets the requirements of the law. the corporation’s taxable year end must not be different from the tax year used for federal purposes. but also includes: • associations. A change in accounting period or method requires consent from the Franchise Tax Board. The minimum tax is $800 per year.

ftb. see page 2. whichever is later. as measured by income reported on the return. See Form FTB 100 Booklet and 100S Booklet for more information. we impose a 5 percent penalty on the unpaid tax. Note: California allows an additional seven-month filing extension beyond the original due date of the tax return. Refer to Form 100-ES. (R&TC Section 19132) Underpayment of Estimated Tax We impose a penalty if your corporation does not pay. The estimated tax payments will be credited against the total tax shown on the tax return. The penalty is a percentage of the underpayment. or call us at (800) 852-2753. 1060 (REV. after applying any payments and credits made on or before the due date. pays late. This does not extend the due date for the payment of tax. for specific instructions. We also impose a penalty of 0. The maximum penalty is 25 percent of the unpaid tax. for each month or part of a month the return is late. You can use our Underpayment of Estimated Tax by Corporations (form FTB 5806) to determine both the amount of underpayment and the amount of penalty. The maximum penalty is 25 percent. (Exception: a return for a farmers’ cooperative association. The extension is automatic. is due on the 15th day of the ninth month after the close of its taxable year. (R&TC Sections 19142-19161) Step 3 — Filing Returns Each corporation must file a corporation franchise or income tax return (Form 100 or Form 100S) by the 15th day of the third month after the close of the taxable year. However. no action is required on the part of the corporation. it must make all future payments. or underpays an installment of estimated tax. For more information regarding this requirement. through an electronic funds transfer. we impose a penalty of 5 percent of the tax due.gov.ca. Any overpayment of tax.000 or has a total tax liability in excess of $80. you must attach the completed form FTB 5806 to your Form 100. Form 100S.) Special rules exist for short period returns. 1995. described in Section 24404 of the Revenue and Taxation Code. For newly incorporated or qualified corporations. Delinquent Payment Penalty If you do not send the total amount due shown on your entity’s return by the original due date.000 in any taxable year beginning on or after January 1. EFT Requirement Once a corporation remits an estimated tax or extension payment in excess of $20. Note: If your corporation uses Exception B or Exception C for any of the four installments. 04-2001) . (R&TC Section 19131) Page 4 FTB Pub. (R&TC Section 19011) Penalties Delinquent Return Penalty If you do not file your entity’s income tax return by the original due date. regardless of the taxable year or amount. Interest is not paid on refunds made within 90 days of the return due date or the date the return is filed. Payments made by other means will result in a penalty of 10 percent of the amount paid.The percentage of tax required to be paid for each installment is shown in the Installment Due Dates and Amounts of Estimate Tax on the next page. We charge the penalty even if there is an extension of time to file a return. together with interest. access our Website at www. 3817). Any balance of tax due will incur an estimated tax penalty. or Form 109. the amount of the first installment cannot be less than the minimum franchise tax. see our Electronic Funds Transfer Information Guide (FTB Pub. will be refunded or applied to other balances due.5 percent of the unpaid tax for each month or part of a month it remains unpaid.

84-58.84%. • Any installment may be paid before the timely filed date prescribed. refer to federal Rev.5%. the applicable percentage for the estimated tax basis is 100%. 50% of net income multiplied by the applicable estimated tax rate less amount of prior payment. For a taxable year ending in 1996 the rate for corporations was 11. FTB Pub. Rul. Rul. the date of the payment or the date the delinquent return was filed. For more information.84% and for S corporation the rate is 3. use 1. 1984-1 C. and Rev. The overpayment from a delinquent filed prior year return is credited as of the first estimate installment due date. • Generally. whichever is later. first multiply your estimated taxable income by the applicable rate as follows: corporations. whichever is later.B. 1060 (REV. • Banks and financial corporations: corporation rate is 10. 100% of net income multiplied by the applicable estimated tax rate less amount of prior payment. 1 2 3 4 15th day of the 4th month of the taxable year 15th day of the 6th month of the taxable year 15th day of the 9th month of the taxable year 15th day of the 12th month of the taxable year Installment Due Dates and Amounts of Estimate Tax – Accounting Period Less Than 12 Months (First Year Only) Fiscal year taxpayers should adjust dates accordingly Number of Installments If Taxable year (Calendar Year) begins: January 1 through January 16 January 17 through March 16 March 17 through June 15 June 16 through September 15 September 16 through December 31 4 3 2 1 None Percentage of Estimated Tax Due On or Before the 15th Day of April 25% June 50% 331/3% September 75% 662/3% 50% December 100% 100% 100% 100% Notes which apply to the above tables: For taxable years beginning on or after January 1. 04-2001) Page 5 . 1998.5%. 254. an overpayment from the prior year may be credited to the first installment as of the first installment due date or the date of payment.5%. 99-40. S corporations.Installment Due Dates and Amounts of Estimate Tax – Accounting Period of 12 months Installment Due Date Amount Payable 25% of net income multiplied by the applicable estimated tax rate. 75% of net income multiplied by the applicable estimated tax rate less amount of prior payment. use 8. • To compute your tax payment. but not less than the minimum franchise tax. if applicable. Then apply the percentages provided in the table above.3% and for S corporation the rate was 3.

Request for Tax Clearance – Corporations FTB 3557. 1060 (REV.ftb. banks. post offices. and quick print businesses cannot provide tax information or assistance. Page 6 FTB Pub. 1038A. 1060. 1068. 1028. and the following forms which are also available separately: 823 Schedule B (100S). Note: Employees at libraries. S Corporation Depreciation and Amortization Schedule C (100S).Where To Get Tax Forms and Publications By Internet – You may download. Apportionment and Allocation of Income FTB Pub. Underpayment of Estimated Tax by Corporations FTB Pub. and publications. Payment Voucher for Automatic Extension for Corporations and Exempt Organizations 816 California S Corporation Tax Forms and Instructions. Application for Revivor FTB 3560. • Enter the three-digit code shown to the left of the form title when you are instructed to do so. instructions. Qualified Subchapter S Subsidiary (QSub) Information Worksheet. please allow three weeks to receive your order. PO BOX 307. S Corporation Tax Credits Schedule H (100S). Shareholder’s Share of Income. Legal Notices and Rulings dated 96-1 and later are also available. Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations — Corporations 808 FTB 3539. Credits. Dividend Income Schedule D (100S). Exempt Organization Annual Information Return Schedule R. and the following forms which are also available separately: 821 Schedule P (100). Exempt Organization Business Income Tax Return Form 100-ES. California S Corporation Franchise or Income Tax Return. FRANCHISE TAX BOARD. 1061. • Call (800) 338-0505. Instructions for Exempt Organizations Requesting a Tax Clearance Certificate FTB Pub. and print 1994 through 2000 California income tax forms. S Corporation’s List of Shareholders and Consents 808 FTB 3539. 826 FTB 3830. 1075. Schedule QS. Go to our website at: www.” In person – Many libraries and some quick print businesses have forms and schedules for you to photocopy (a nominal fee may be required). Guide for Corporations Starting Business in California FTB Pub.gov By phone – To order 1999-2000 California tax forms: • Refer to the list below and find the code number for the form you want to order. call our toll-free number listed under “General Toll-Free Phone Service.6 FTB Pub. 814 818 813 815 819 812 805 809 810 California Tax Forms and Publications 817 California Corporation Tax Forms and Instructions. etc. S Corporation Capital Gains and Losses and Built-In Gains 825 Schedule K-1 (100S). Payment Voucher for Automatic Extension for Corporations and Exempt Organizations Form 109. Deductions. Corporation Estimated Tax Form 100X. S Corporation Election or Termination/ Revocation FTB 5806. Alternative Minimum Tax and Credit Limitations — Corporations 822 FTB 3885. California Corporation Franchise or Income Tax Return. Amended Corporation Franchise or Income Tax Return Form 199. RANCHO CORDOVA CA 95741-0307. Corporation. 04-2001) 827 829 820 802 803 804 811 806 800 801 832 This booklet contains: Form 100S. • Select order forms and publications. This booklet contains: Form 100. Guidelines for Corporations Filing a Combined Report Form 100W. Water’s-Edge Booklet FTB 3564. • Select business entity tax information. If you live outside California. Guidelines for Homeowners’ Associations FTB Pub. view. Exempt Organizations Requirements for Filing Returns and Paying Filing Fees FTB 3500. Exemption Application FTB 3555. Request for Tax Clearance Exempt Organizations . By mail – Write to: TAX FORMS REQUEST UNIT. Instructions for Corporations Requesting a Tax Clearance Certificate FTB Pub. 1038. Authorization of Agent Under Revenue and Taxation Code Section 19141. For prior year California tax forms.ca. Please allow two weeks to receive your order. Exempt Organizations – Guide for Political Organizations FTB 3555A. Depreciation and Amortization 807 FTB 3805Q.

. . 708 FTB Pub. . Code Filing Assistance 715 If my actual tax is less than the minimum franchise tax. . . . . . . . (916) 464-3502 Website . . . . . (888) 745-3886 From outside the United States . 2001. www. call the IRS at (800) 829-1040 To Get Information If you need an answer to any of the following questions. . . Other California State Agencies Secretary of State Incorporation/Qualification Information . .ca. . . . .m. . . . . What figure do I put on line 22 of Form 100S? Where do S corporations make adjustments for state and federal law differences on Schedule K-1 (100S) and where do nonresident shareholders find their California source income on their Schedule K-1 (100S)? Assistance for persons with disabilities The FTB complies with provisions of the Americans with Disabilities Act. what figure do I put on line 23 of Form 100? 717 What are the current tax rates for corporations? 718 How do I get an extension of time to file? 722 When do I have to file a short-period return? 734 Is my corporation subject to franchise tax or income tax? S Corporations Is an S corporation subject to the minimum franchise tax? Are S corporations required to file estimate payments? What forms do S corporations file? The tax for my S corporation is less than the minimum franchise tax. .gov Board of Equalization Toll-Free Number . . . . . (916)657-5448 Website . . . . our general toll-free phone service is available: • Monday – Friday. . . . .Letters If you write to us. . . . . (916) 845-6500 For federal tax questions.m. . . . . . . . . . .m. . . . . . . your daytime and evening telephone numbers. . . (800) 735-2922 From TTY/TDD (Direct line to FTB customer service) . . . (800) 852-5711 704 705 706 707 Asistencia bilingue en espanol Para obtener servicios en español y asistencia para completar su declaración de impuestos/formularios. . . . . . . . 7 a. . Persons with hearing or speech impairment call: From voice phone (California Relay Service) .ss. . . . . . . (800) 822-6268 For all other assistance or special accommodations . (800) 852-5711 From outside the United States (not toll-free) . . . . . follow the recorded instructions. . . . . . and • Saturdays and holidays.gov Employment Development Department (State Disability Insurance. Personal Income Tax Withholding and Unemployment Insurance) From within the United States . From within the United States . 04-2001) Page 7 . until midnight. .edd. . www. . . we may need to call you for additional information. . . . . . . . . . .m. . and a copy of the notice with your letter. call (800) 338-0505. . llame al número de teléfono (anotado arriba) que le corresponde. . . . be sure to include your California corporation number or federal employer identification number.m. . . .boe.m. . our general tollfree phone service is available: • Monday – Friday. . . . . . 1060 (REV. . 2001. 7 a. www. . . . (800) 400-7115 Website . . . select business entity information then general tax information. . . . 7 a. 6 a. . .ca. . . . . . . . . Do not attach correspondence to your tax return unless the correspondence relates to an item on the return. . . . . . . . . . . • Saturdays. . Note: We may modify these hours without notice to meet operational needs.m. . . . . until 8 p. . . . . . . . .ca. In some cases. until 4 p. . After April 16. . . . Send your letter to: FRANCHISE TAX BOARD PO BOX 942857 SACRAMENTO CA 94257-0540 We will respond to your letter within six weeks. . . .gov General Toll-Free Phone Service Between January 2 – April 16. and enter the three-digit code when instructed to do so. until 4 p.

Can I still get a tax clearance? Miscellaneous Who do I need to contact to start a business? I need a state ID number for my business. or anything. What is this for? Why was my corporation suspended? Why is my subsidiary getting a request for a return when we file a combined report? Tax Clearance How do I dissolve my corporation? What do I have to do to get a tax clearance? How long will it take to get a tax clearance certificate? My corporation was suspended/forfeited. 04-2001) .709 710 735 736 Exempt Organizations How do I get tax exempt status? Does an exempt organization have to file Form 199? How can an exempt organization incorporate without paying corporation fees and costs? I have exempt status. 1060 (REV. Do I need to file Form 100 or Form 109 in addition to Form 199? Minimum Tax and Estimate Tax What is the minimum franchise tax? My corporation is not doing business. does it have to pay the minimum franchise tax? When are my estimate payments due? Billings and Miscellaneous Notices I received a bill for $250. Who do I contact? Can you send me an employer’s tax guide? How do I incorporate? How do I properly identify my corporation when dealing with the Franchise Tax Board? How do I obtain information about changing my corporation’s name? 721 737 738 739 740 712 714 716 750 751 752 753 754 755 756 How do I change my accounting period? Where do I send my payment? What is electronic funds transfer? How do I get a copy of my state corporate tax return? What requirements do I have to report municipal bond interest paid by a state other than California? How do I organize or register an LLC? How do I cancel my registration of my LLC? What tax forms do I use to file as an LLC? When is the annual tax payment due? What extension voucher do I use to pay the LLC fee and/or member tax? Where does an LLC send its tax payments? As an LLC I never did any business or even opened a door. is the corporation liable for tax as a corporation and an LLC tax/fee in the same year? If I have nonresident members and cannot get all their signatures on the consent release form. Why do I owe the $800 annual tax? How are the LLC fees calculated? If a corporation converted to an LLC during the current year. can I still file the return? 723 728 729 757 758 724 725 726 727 759 700 701 702 703 719 720 Page 8 FTB Pub. bank account.