How to Withdraw a Business from California: Franchise Tax and Sales Tax Implications

GENERAL PROCEDURES

From an income tax perspective, a company would generally not be required to confirm with the Board of Equalization or the Franchise Tax Board that they no longer have a taxable presence or legal obligation to file returns. A company would simply need to complete the following steps:

  1. File a final franchise or annual tax return timely, including extension, for the preceding taxable year.
  2. Conduct no business after the last day of the preceding taxable year.
  3. File the appropriate documents with the California Secretary of State (SOS) within 12 months of the filing date of the final tax return.

NOTE: effective September 29, 2006, a tax clearance certificate is no longer required for corporations, limited liability companies (LLC), limited liability partnerships (LLP), limited partnerships (LP), certain exempt organizations, and nonprofit corporations who are going to dissolve, surrender, or cancel their California business entity.

For more info, go to http://www.ftb.ca.gov/businesses/faq/Closing_a_Business_Entity.shtml.

From a sales tax perspective, if a company no longer has a taxable presence in California and has no other legal obligation to collect sales tax, generally, the company may stop collecting sales tax immediately. A company would then need to complete the following:

  1. File Form BOE-65, Notice of Close Out for Seller’s Permit
  2. File Final sales/use tax returns.

For the form and more info, go to http://www.boe.ca.gov/pdf/pub74.pdf.

The above is general advice. Please seek knowledgeable state and local tax counsel to address your specific situation. You may contact me at brian.strahle@bakertilly.com.

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Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States.  He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect."  For more info, visit his website: www.leveragestateandlocaltax.com

You can reach Brian at strahle@leveragesalt.com.

Connect with Brian on LinkedIn. Follow Brian on Twitter. Join the Leverage | SALT LinkedIn Group, connect and contribute with your colleagues!  

Because state and local taxes are deceptively simple and endlessly complicated.

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