40,000 CA Businesses Take Note: The Tax Man is Coming

The Sacramento Business Journal is reporting that more than 40,000 California businesses haven’t filed their 2008 state income tax returns.

These business owners can expect to hear from the Franchise Tax Board shortly, and will be receiving notices demanding that they either file a return or show why there is no tax filing requirement. You’ll have 30 days to respond, or face potential tax assessments, penalties and interest.

My guess is this has to do with California’s annual $800 privilege tax. That’s what you, as a business owner, are required to pay, whether or not the corporation or LLC is active, inactive, profitable, or loses money. The franchise tax is generally due by April 15th each year.

I’ve come across many clients over the years who thought that because they started a business but didn’t do anything with it, or because they had stopped doing business, they were exempt. I wish that were true, but the state doesn’t really see it that way. Once you file your Articles with the California Secretary of State’s office, the Franchise Tax Board is automatically notified, and a reminder to pay the tax is sent about a month after the formation.

If you’ve got a California business, or a foreign business registered into California, keep this in mind. If you’ve got some old companies you aren’t using, or which you started and never did anything with, they could be quietly ticking away, accruing penalties and interest. The only way to stop the tax clock is to make sure you file a Notice of Dissolution with the Secretary of State. That puts the state on notice that you’re taking the business down. It won’t necessarily get you out of paying back taxes, but it will stop new tax years from being added to your account.

Last year the FTB reviewed over 5 million income records from a number of sources, and collected approximately $38 million from non-filing businesses the agency notified.

And with an annual tax gap of $6.5 billion per year, you can expect the FTB to keep up or expand these efforts!

If you need help in shutting down a California-incorporated business, or de-registering a foreign company from California, we can help. Drop us a line at and we’ll help you to get the process started.

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