Corporation Tax Law–A Guide for Corporations

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Corporation Tax Law–A Guide for Corporations File Size: 24.02 KB
Category: Business & Franchise
Source: www.ftb.ca.gov

Guide for Corporations Starting Business in California (FTB Publication1060 You can get Franchise Tax Board publications, forms, and instructions from our

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less than 12 months. (R&TC Section 23113.) A taxable STATE OF CALIFORNIA year is also defined the same as a federal taxable year FRANCHISE TAX BOARD (R&TC Section 24631) and is one of the following: FTB 1063 • The taxpayer's annual accounting period, if it is a calendar year or fiscal year. • The calendar year, if the taxpayer has not been California keeping books and records. • The period for which the return is made, if a return is made for a period of less than 12 months. Corporation Tax The taxable year of a corporation may not be different from the taxable year used for purposes of the Internal Law – A Guide for Revenue Code unless we approve it or its difference is required under R&TC Section 24634. (R&TC Corporations Section 24632) Accounting Period – Same as “ Taxable Year.” Independent Contractor – The term “independent contractor” means a commission agent, broker, or other In this document we refer to the California Corporation independent contractor who is engaged in selling or Tax Law as CTL and the California Revenue and soliciting orders for the sale of tangible personal property Taxation Code as R&TC. for more than one principal and who holds himself out as The California Franchise Tax Board administers the such in the regular course of his business activities. Corporation Tax Law. The CTL is codified as Part 11 of (Title 15, United States Code Annotated Section 381 Division 2 of Title 18 of the Revenue and Taxation Code. [Public Law 86-272]) In general, a franchise tax is imposed on all corporations Tangible Personal Property – Refers to material assets doing business in California for the privilege of such as cars, equipment, or stocks of goods. exercising a corporate franchise in California. An income tax is imposed on all other corporations that, while not De Minimis Activities – These are activities that, when “doing business” in California, derive income from taken together, establish only a trivial connection with sources within California. the taxing state. An activity conducted within a taxing state on a regular or systematic basis, or pursuant to a company policy (whether such policy is in writing or not) Definitions of Terms Used in will normally not be considered trivial (Wisconsin Department of Revenue v. William Wrigley, Jr., Co., 505 This Guide U.S. 214, 112 S.Ct. 2447 (1992)). For more information, get Application and Interpretation of Public Law 86-272 Corporation – The term “corporation” applies to all (FTB Publication 1050). corporations, other than corporations specifically exempted by the R&TC or the California Constitution. Also, certain unincorporated associations, trusts, FRANCHISE TAX professional corporations, and limited liability companies are treated as corporations. (R&TC Section 23038) R&TC Sections 23101-23364a Foreign Corporation – Any entity incorporated outside In general, every corporation that incorporates or California. qualifies to do business in California is subject to a tax Doing Business – This term is given a broad according to or measured by net income. The interpretation. The CTL defines “doing business” as corporation computes its tax liability by multiplying its “actively engaging in any transaction for the purpose of state net income by the appropriate tax rates. However, the tax due for the taxable year, including a short period financial or pecuniary gain or profit.” (R&TC Section return, may not be less than the minimum franchise tax. 23101) (R&TC Sections 23151 and 23153) Calendar Year – A period of 12 months ending on The CTL imposes a franchise tax on all corporations December 31. incorporated in California, qualified through the Fiscal Year – A period of 12 months ending on the last California Secretary of State, or nonqualified day of any month other than December. corporations “doing business” in California. The Income Year – References to “income year” were franchise tax is imposed for the privilege of exercising replaced with “taxable year” in all the provisions of the the corporate franchise in this state and is measured by CTL. (R&TC Section 23042) the income of the corporation from California sources. Taxable Year – A calendar year or fiscal year under While banks are included in the definition of which the tax is payable. (R&TC Section 23041.) This is “corporation,” the CTL contains special provisions for the annual accounting period for which the net income is determining and computing the rate and applicable computed and the tax is due. A taxable year may be provisions. FTB 1063 (REV 06-2003) SIDE 1

 

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