Thursday, February 4, 2016
Startup small business tax part 2 California franchise tax and other tax filings for foreign entities
We all know Silicon Valley as the technology and startup center of the world. In fact, many YCombinator startups incorporate in Delaware and do business in California especially during their 3 months stay at the accelerator. This blog post contains my notes from previous internet searches on California Franchise Tax, sales tax and filings for foreign entities (companies doing business in California that are incorporated in another state.).
Any business with nexus needs to register as a foreign entity in California, i.e. an out-of-state company. If you have one employee in California, one warehouse, office and now even if you just do business and take in some sales revenue in Cal. Amazon used to move its warehouses and offices outside Californian to avoid nexus. But eventually agreed to collect sales tax for all California shipping addresses. Making companies register is a great way for the government to monitor and collect tax due. Nexus in colloquial terms just means sufficient physical presence. Here's an intuit article about Nexus. http://quickbooks.intuit.com/r/taxes/what-is-nexus-and-how-does-it-affect-your-small-business
$800 Dollars Californian Franchise Tax
This franchise has nothing to do with fast food chains. It's a type of corporate tax, one of the prices you have to pay to main a corporate status rather than a sole proprietorship (of which your entire personal asset may be liable). California Franchise Tax will collect a minimum of $800 dollars.
Register with Secretary of State
If a company is doing business in California, such as a startup headquartered here and has employees, the company must register with the Secretary of State of California prior to incurring transactions here. In reality, some startups are slow at filing and may incur financial penalties though not right away. It's a risk.
The registration process is simple and straightforward. Including a stamped, addressed envelope along with an extra copy of the filing and request the agency to stamp for confirmation can also be very helpful.
It's best to register early if you intend or already are doing repeated or successive transactions within California.
Failure to register and qualified to do a business in a state may cost you A venture capital deal
This blog post below from tech startup lawyers dot com mentions a term often seen in startup investment and venture capital deals that allow investors to back out of a deal if the company fail to qualify for business in a designated state.
Usually the government also charges a filing fee along with the tax due.
Disclaimer: always check internet information against government websites, and only trust information posted on government tax agency websites. Only certified CPA of the state can give accurate advice. Please only consider this blog post notes of my own personal research NOT as legal or accounting advice.
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