- What is a C Corporation?
- Filing Requirements and Related Questions
- Doing Business in California and Other States
- Foreign C Corporations - Conventions and Trade Shows
- Limited Liability Companies Treated as C Corporations
- Helpful Forms and Publications
- Definitions of Basic Terms
What is a C Corporation?
A C corporation is a legal entity that exists separately from the people who own, manage, control, and operate it. It can enter into contracts, pay taxes, and is liable for its debts.
A C corporation issues shares of its stock, as evidence of ownership, to the person (s) or entities that contribute the money or business assets the corporation uses to conduct its business.
The stockholders or shareholders own the corporation and are entitled to any dividends the corporation pays. If the corporation liquidates, they are entitled to all of the corporation's assets after all creditors are paid.
To incorporate your business or qualify your foreign corporation to doing business in California, please contact the Secretary of State, Business Filings at (916) 657-5448, or visit their website at: www.sos.ca.gov
Filing Requirements and Related Questions
Q. What is the tax rate for C corporations?
A. The annual tax for C corporations is the greater of 8.84% of the corporation's net income or $800. Note: As of January 1, 2000, newly incorporated or qualified corporations are exempt from the annual minimum franchise tax for their first year of business (see below.)
Prepayment Upon Incorporation
Prior to January 1, 2000, C corporations that incorporated or qualified to do business prior to January 1, 2000, made a prepayment of minimum franchise tax to the Secretary of State for the privilege of doing business in California during the corporation's first year.
On or after January 1, 2000, Beginning on or after January 1, 2000, every corporation that incorporates or qualifies to do business in California is exempt from the:
- Prepaid minimum franchise tax which would be paid to the Secretary of State, and
- Minimum franchise tax for its first return (see Example 1 below).
These corporations compute their tax by multiplying their net income for the year by 8.84% times their net income for the year (see Example 2 below).
Important: Newly incorporated or qualified corporations are subject to the minimum franchise requirement on their second return (See Example 3 below).
Example 1 - First year loss:
Beta Corporation incorporates on February 21, 2000, and pays only the Secretary of State filing fee. Beta selected a calendar year end. When Beta files its first return for the short income year of February 21 to December 31, it shows that the corporation operated at a $3,000 loss. Because Beta is a new corporation, it is not subject to the minimum franchise tax for its first tax return.
Example 2 - Profitable first year:
Johnson Corporation incorporates on January 11, 2000 and pays only the Secretary of State filing fee. Johnson selected a calendar year end. For the year ending December 31, 2000, it shows a $6,300 of income. When the corporation files its return, it owes $557 of tax ($6,300 X 8.84%).
Example 3 - Second year return:
Johnson Corporation shows a $1,400 loss on its return for the year ending December 31, 2001. Since the corporation operated at a loss for the year, it owes only the $800 minimum franchise tax.
For California purposes, the corporation's accounting period must be the same as the one used for federal purposes. The first accounting period cannot end more than 12 months after the date of incorporation or qualification in California.
Short accounting periods (15 days or less)
New corporations that have an initial income year of 15 days or less and do not do business during that time are not required to file a return or pay the minimum franchise tax for that period. To qualify for this treatment, it must file its Articles of Incorporation the Secretary of State on or after the following dates:
|Month Incorporated and Taxable Year Ending||Day of the Month|
|January, March, May, July, August October and December
|17th or after|
|April, June, September and November (30-day month)||16th or after|
|February (28-day month)||14th or after|
|February (during Leap Year, 29-day month)||15th or after|
- Do I have to pay estimated tax?
All corporations that are incorporated qualified, or doing business in California, whether active or inactive, must make estimated tax payments. The Franchise Tax Board will asses an estimated tax penalty if the payment is late or for an insufficient amount.
- What forms do I need to file for a corporation?
All California C corporations and LLCs treated as corporations file Form 100 (California Franchise or Income Tax Return).
- When do I file my corporation return?
Form 100 is due on the 15th day of the third month after the close of the year. If the due date falls on a Saturday, Sunday, or legal holiday, the filing date becomes the next business day.
Automatic Seven-Month Extension to File:
Corporations (in good standing) that have fully paid their tax liability but cannot file their return by the due date receive an automatic seven-month extension to file the return. Since the extension is automatic, there is no extension request form. If the corporation owes tax, it should submit form FTB 3539 (Payment Voucher for Automatic Extension for Corporations and Exempt Organizations) with payment by the original return due date.
Important: An extension to file is not an extension to pay. Tax is due on or before the original return due date regardless of an extension to file.
Returns filed after the extended due date are treated as delinquent, with penalties computed from the original return due date.
Doing Business in California and Other States
Corporations that do business in California and other states must apportion their unitary business income using Schedule R, Apportionment, and Allocation of Income.
Example: In 2000, David's Toy, Inc., a Nevada corporation, opens an office in California. Since the corporation is doing business in both Nevada and California, it must file a California Form 100 and use Schedule R to apportion income between the two states.
Foreign C Corporations - Conventions and Trade Shows
Special rules apply to foreign C corporations that participate in conventions or trade shows in California but normally do not do business in this state.
A foreign corporation that is not qualified to do business in California is subject to the corporation income tax (8.84% of net income; no minimum franchise tax) if it meets all of the following requirements:
- It is not incorporated in California,
- Its sole activity in this state is engaging in convention and trade show activities,
as described in IRC Section 513(d)(3)(A), and during the income year,
- It was in the state for seven or fewer calendar days, and
- It did not derive more than $10,000 of gross income reportable to the state from its activities.
For more information regarding convention and trade shows, please see the instructions for Form 100 (California Franchise or Income Tax Return).
Limited Liability Companies Treated as C Corporations
A limited liability corporation that is classified as an association taxable as a corporation for federal purposes must file Form 100 (California Corporation Franchise or Income Tax Return). California and federal laws treat these LLC's as corporations subject to California corporation tax law.
Helpful Forms and Publications
- Publication 1060 (Guide to Corporations Starting Business in California)
- Publication 583 (Starting a Business and Keeping Records, Forms of Business)
- Publication 946 (How to Depreciate Property)
General C Corporation Information
- Form 100 (California Corporation Franchise or Income Tax Return Instructions)
- Form 1120 (U.S. Income Tax Return for an Corporation)
- Publication 542 (Corporations)
Doing Business In and Out of California
- Publication 1050 (Application and Interpretation of Public Law 86-272)
- Publication 1061 (Guidelines for Corporations Filing a Combined Report)
- Schedule R (Apportionment and Allocation of Income)
- Form 100W Booklet (Corporation Tax Booklet Water's-Edge Filers)
Definitions of Basic Terms
- Domestic Corporation
A corporation is created by filing Articles of Incorporation with the Secretary of State. If the articles submitted meet the requirements of the state, the articles are endorsed. The filing date is stamped or endorsed on the articles.
The corporation remains in existence from the date the Secretary of State endorses the Articles of Incorporation and continues until it formally dissolves.
- Foreign Corporation
A foreign corporation is a corporation incorporated or formed in another state or country.
It qualifies to do business in California by filing a “Statement and Designation by Foreign Corporation” and an original certificate of good standing from the state or country in which it was incorporated with the Secretary of State.
Once a foreign corporation qualifies with the Secretary of State to do business in California it is subject to the franchise tax.
Important: A foreign corporation that does not qualify with the Secretary of State, but does business in California, is also subject to the franchise tax.
- Calendar Year
A calendar year is an accounting period of 12 months ending on December 31.
- Fiscal Year
A fiscal year is an accounting period of 12 months ending on the last day of any month other than December.
- Doing Business
Doing business is defined as actively engaging in any transaction for the purpose of financial gain or profit.
- Qualified Corporation
A qualified corporation is a foreign corporation that has qualified through the Secretary of State.
- Franchise Tax
The corporate franchise tax is imposed for the privilege of exercising the corporate franchise in California. It is imposed on all corporations that do business in California.
- Minimum Franchise Tax
Except for newly incorporated or qualified corporations, all corporations doing business in California are subject to an annual minimum tax franchise tax of $800. This is true even if the corporation is inactive or operates at a loss during the year, and regardless of whether or not it did business for a full 12 months.