Somerville, MA asked in Business Law, Employment Law and Tax Law for California

Q: CA franchise tax required just because I have an employee there?

We are a MA-based S corporation. If we have an employee who works remotely in CA, must we pay the franchise tax (minimum $800)?

RTC DIVISION 2 - PART 11 - CHAPTER 2 - ARTICLE 2 - Section 23153 says that this only applies to (1) corporations incorporated in CA (we're not), or (2) corporations qualified to transact intrastate business in this state pursuant to Chapter 21, Section 2100, of Division 1 of Title 1 of the Corporations Code (not sure what this is exactly, but we never got a certificate of qualification, so I don't think this applies to us, though not sure), or (3) corporations that are doing business in this state.

RTC DIVISION 2 - PART 11 - CHAPTER 2 - ARTICLE 1 - Section 23101. Definition of “Doing business” does not mention having employees, it seems.

So it seems having a remote employee does not trigger the franchise tax requirement. Is that true?

1 Lawyer Answer
Kenneth Sisco
Kenneth Sisco
PREMIUM
Answered
  • Norco, CA
  • Licensed in California

A: Employees have nothing to do with the California Minimum Tax. If you are an entity, LLC, Corp., LP, etc., that has applied for, and obtained qualification to do business in California, you are required to pay the Minimum tax of $800 per year, whether you have any employees or not, in California or not.

If you do business in California without being qualified, and get caught, the entity will be required to pay the tax. The most common way an entity is caught, is when it is sued. If the entity is not qualified, it is not allowed to defend itself in Court, until it becomes qualified, and pays all back taxes.

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