Do I still owe franchise tax fees if…

“I’ve sold my business and I no longer have my corporation/LLC?”  The real question is did you sell your corporation or just its assets?  If you sold the assets and never closed out the corporation/LLC with the Secretary of State, the corporation/LLC is still responsible for paying the annual franchise tax fee to the Franchise Tax Board every year.  This can come as a nasty surprise to anyone whom receives a letter sometimes years later saying that they owe for all the preceding years.  If you sold the corporation, make sure that the Secretary of State knows that you are no longer in business and/or the responsible party and file a final tax return with the Franchise Tax Board during the appropriate tax season.  Either way, the broker or escrow office should inform you of what is required at the time of the sale.  If they don’t, you may want to ask them.

“I’ve kept the corporation/LLC name so that I can use it in the future again but I haven’t done any business in years?” I’ve heard this a few times and the same rule applies:  If you have left it open with the Secretary of State, you are still liable for the annual franchise tax fee.  It comes as no surprise that many shareholders/members are shocked to find out that they have this responsibility even if they don’t do anything with the business.  It is actually cheaper to dissolve the business at the time and later re-open it and/or rename it (if needed) than it is to pay a minimum of $800 a year just to keep that name.

So who actually owes the fees?  In reality, the corporation/LLC owes them.  As they are considered separate entities, you should not be the one to personally pay these fees. However, LLC’s may also be regarded as ‘disregarded entities’ so make sure you know which you have as the rules may be different and you may have to pay the fees in that case.

You should always discuss these types of scenarios with your tax professional.  Having the right information can save you thousands of dollars in the long run.

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