If my California corporation elects Subchapter S status, is it subject to Californias minimum franchise tax?
A. Yes. Sorry, but S corporations ARE subject to the minimum franchise tax. The tax is due by the first quarter of each tax year (normally a calendar year) whether the corporation is active, operates at a loss, or does not do business. The current California minimum franchise tax is $800 For new corporations that incorporate after January 1, 2000, the minimum tax is zero for the first tax year, measured for the second tax year, and $800 for subsequent years Effective January 1, 2000, there is no advance payment of franchise tax due on filing of the articles of incorporation. Under the new law, a corporation (Subchapter S or not) will avoid paying the $800 minimum franchise tax during its first tax year, but not the second tax year. The trick is to understand that the minimum franchise tax for the THIRD YEAR is due and payable at the end of the first quarter of SECOND YEAR. It is a strange rule but that is presently the law in California.
