** LEGAL UPDATE **
California Governor Gavin Newsom signed the state's 2020 Budget Act on June 29th. The new spending plan includes measures aimed at supporting small businesses struggling in the wake of the COVID-19 pandemic.
The 2020 Budget Act extends the first year exemption from California's $800 minimum franchise tax to limited liability companies (LLCs), limited partnerships (LPs), and limited liability partnerships (LLPs). Under the new rules, for the period starting January 1, 2021 and ending December 31, 2023, any LLC, LP, or LLP that files, registers, or organizes to do business in California is exempt from the state's $800 minimum annual franchise tax for its first taxable year. Under prior law, only corporations were exempt from the minimum franchise tax in the first year after they registered with the state. The purpose for the change was to remove a barrier to small business creation.
Starting in their second taxable year, all LLCs, LPs, LLPs, and corporations that have filed, registered, or are organized to do business in California become subject to the annual $800 annual minimum franchise tax until they formally dissolve.
For other COVID-related tax relief granted to small businesses in California, see COVID19.CA.GOV.
Effective date: January 1, 2021.
Nolo provides an LLC formation service online. Find out how you can start a California LLC and take advantage of this new franchise tax exemption.