What's the Franchise Tax Board?

The Franchise Tax Board is California's taxing authority.

 

But if we're tax exempt, why do we have to deal with them?

California is unique among all states, in that it:

  1. considers ALL corporations taxable by default and
  2. charges ALL corporations an $800 minimum annual corporate tax (even if inactive).
The way around this is to receive tax-exempt status from the Franchise Tax Board. (IRS tax exemption does NOT count here.)

How do I become tax-exempt?
A few years ago the F.T.B. simplified the process of becoming tax-exempt if you're already exempt under IRS Section 501(c)(3) [and (c)(4), (c)(5), etc.].

Once you have I.R.S. exemption, you need to file a simple, two-page form with the F.T.B. --
Form 3500a -- and you'll be automatically recognized as state-tax exempt. (Be sure to include your I.R.S. letter with this form.)

Checking your status
In February 2010 the F.T.B. "went live" on the Web with a list of ALL tax-exempt organizations in California.

The list contains information about whether the entity is "active" or "suspended" with the F.T.B. and the Secretary of State.


Here's a link to the exempt organization list, which contains almost 200,000 entries and is updated monthly.
                                                            
Filing requirements
Don't forget to file your annual
Form 199 if your gross receipts average more than $50K. Click here to find the averaging formula.

Filing rules for small organizations

Click here to file Form 199-N (e-postcard), which must be filed every year by most small organizations. (The e-postcard came into being for tax years starting in January 2010 and did not exist prior to that.)

Check this portion of the Website for the filing rules, which are similar to the IRS's annual electronic postcard for small organizations.

To resolve delinquency
In my experience, the F.T.B. is the most "phone-reachable" state agency to help resolve your non-compliant status. Here's how to reach them:

* call the Exempt Unit: 916-845-4171.

Money-saving hint
If your delinquency goes back several years, the F.T.B. may tell you that you owe thousands of dollars in taxes, penalties and interest, but I don't recommend that you automatically pay them.

Why? Because as an exempt entity you're not required to pay corporate taxes. I've found that retroactive restoration of status takes place quickly as long as you file all the required forms.

Exception to the above: there's a late-filing penalty for Form 199 of up to $40 per year. I always pay that and other smaller fees.

 

WARNING: The F.T.B. is now retroactively REVOKING exemption if an organization indicates to the F.T.B., in response to an inquiry, that it has been inactive or if it reports little or no revenue for several years. Click here to see the F.T.B.'s definition of "active" vs. "inactive."

 

USEFUL FREE SERVICE: Entity Status Letter
By going to
this portion of the F.T.B. site, if you're in good standing with the F.T.B., you'll be able to immediately generate an Entity Status Letter, which looks cool and official, besides being written proof that you're in good standing with that agency.

Print Print | Sitemap
© Josh Wagner dba Non-Profit-World.com