Just Can't Escape it: DE, CA, and SF Taxes

This time of year, our firm often receives inquiries from our startup and small business clients regarding Delaware, California, and San Francisco taxes.  To that end, we provide this informative blog to remind our clients and friends about their tax obligations.

Delaware Franchise Tax and Annual Report - March 1, 2019

Most of our startups incorporated in Delaware, as Delaware C corporations.  For those companies, their 2018 Delaware Franchise Tax and Annual Reports are due on or before March 1, 2019. The reports may be filed electronically online on the Delaware.gov website or via the company’s registered agent for service of process in Delaware.

C corporations can expect the minimum tax to be set at $175.00, for corporations using the Authorized Shares method; or a minimum tax of $400.00 for corporations using the Assumed Par Value Capital Method.  All corporations using either method will have a maximum tax of $200,000.00.

California Annual Franchise Taxes - March 31, 2019

While most of our startups are incorporated in Delaware, many register their place of business in California, where they are headquartered and/or where the founders reside, if they are working from home.  The California Franchise Tax Board requires a minimum franchise tax is $800.00 per year, or the net income of the corporation multiplied by its applicable corporate tax rate.

Startups incorporated in Delaware but headquartered in California must pay the minimum franchise tax during the first quarter of each accounting period.  For 2019, the first payment should be postmarked by March 31, 2019. Startups must pay the franchise tax even if the corporation is operating at a loss, or is not doing any business at all.

San Francisco Annual Business Tax Return - February 28, 2019

Additionally, if the startup is based in San Francisco, it must file a San Francisco Annual Business Tax Return before February 28, 2019 if it has:

1. Paid $300,000.00 or more in payroll expenses; or
   
2. Had more than $1,120,000 in combined taxable San Francisco gross receipts.
   

If the startup pays late, there are penalties and fees, consisting of:

1. A late payment penalty equal to the fee or tax multiplied by the penalty percentage as described in the table below;
   
2. Interest accruing at 1% per month on the amount that remains unpaid; and
   
3. An administrative fee of $55.
   

A startup may request a 60-day extension, but in order to do so, it must complete and submit a request and pay 100% of its 2018 Annual Business Tax (Gross Receipts Tax and Payroll Expense Tax) liability on or before the deadline of February 28, 2019.  If the startup does not make the required 100% payment by February 28, 2019, or it does not file the Return by April 29, 2019, its Request for Extension to File will be denied and it will be subject to penalties, interest, and fees.

Smith Shapourian Mignano PC is available to answer any questions or concerns you may have regarding your business’ taxes.  We can refer you out to a trusted accountant for startups or small businesses.

This blog does not constitute solicitation or provision of legal advice, and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction. You should always consult a suitably qualified attorney regarding any specific legal problem or matter in a timely manner, as statutes of limitations may bar your claim.