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California exempts LLCs, LPs, and LLPs from first year $800 minimum fee

When California’s Governor Gavin Newsom signed the 2020 budget on June 29, 2020, the first-year exemption from the $800 minimum tax was finally extended to limited liability companies (LLCs), limited partnerships (LPs) and limited liability partnerships (LLPs). California corporations have been exempted from the $800 minimum tax in the initial year for some time.

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Now LLCs, LPs and LLPs will not owe $800 for their first year doing business in California. The first-year exemption applies to years beginning on or after January 1, 2021 through December 31, 2023. Single member LLCs are included under the exemption.

If an LLC, LP or LLP does not file or register with the SOS’s office in the first year conducting business in California, it will be ineligible for the $800 exemption.

LLCs, LPs, and LLPs owed the $800 minimum tax in the first year that they filed, registered, or organized to do business in California, even if the first year was shorter than 12 months. Many out-of-state entities find themselves subject to penalties and interest when they overlook the California filing and minimum franchise fee as typically pass-through entities are not subject to state tax in other jurisdictions.

LLCs, LPs, or LLPs will be required to pay the $800 minimum tax in their second year and will be subject to the annual minimum until they dissolve. If you are planning on creating an LLC, LP or LLP you may want to wait until January 1, 2021 and avoid the first year’s $800 California minimum tax.

Contact your Henry+Horne tax advisor with any questions you may have.

Melinda Nelson, CPA