The $800 minimum franchise tax is owed in loss years, in dormant years, and is not prorated for a short taxable year. The classic costly mistake: the owner stops operating or 'closes' the business but never formally dissolves with the Secretary of State and never files a final return with FTB — so the $800 keeps accruing every year, plus penalties and interest, often surfacing years later as a five-figure balance. A closely related trap is the widely repeated 'first year is free': the waiver covers only the $800 minimum, and 1.5% still applies to first-year net income.
Recognized automaticallyPTET available
S-corp election in California
In short
1.5% S corporation franchise tax on California net income, with an $800 annual minimum franchise tax.
Does California recognize the federal S election?
California recognizes the federal S election automatically — there is no separate California election form. But recognition does NOT mean exemption, and California is the single most important state where an S corporation still owes substantial entity-level tax. Every S corporation that is incorporated in California, doing business in California, registered with the Secretary of State, or receiving California-source income must file Form 100S and pay a 1.5% franchise tax on California net income, subject to an $800 annual minimum franchise tax.
Tax the entity still owes
FTB taxes every S corporation with California source income at 1.5%. The minimum franchise tax is $800 and is due the first quarter of each accounting period. Per FTB, you must pay it 'whether your corporation is active, inactive, operates at a loss, or files a return for a short period (less than 12 months).' FTB waives the minimum tax for newly formed or qualified S corporations filing an initial return for their FIRST taxable year — but 'any first-year net income is still subject to the 1.5% tax rate.' The minimum is also waived if the corporation did no California business during the year and the taxable year was 15 days or fewer. Income inside and outside California is apportioned on Schedule R. Form 100S is due the 15th day of the 3rd month after the close of the taxable year.
Registering for payroll
Register with the Employment Development Department (EDD), which is the single registration covering Personal Income Tax (PIT) withholding, State Disability Insurance (SDI, employee-paid), Unemployment Insurance (UI, employer-paid), and the Employment Training Tax (ETT). Registration is required once wages paid in a calendar quarter exceed $100. The employee completes Form DE 4. Quarterly reporting is on Forms DE 9 and DE 9C through e-Services for Business, and new hires must be reported on Form DE 34. The $100/15.
Annual filings
Form 100S (California S Corporation Franchise or Income Tax Return) due the 15th day of the 3rd month after the close of the taxable year (March 15 for calendar-year filers). The $800 minimum franchise tax is due the first quarter of each accounting period. FTB 3804 and FTB 3893 if making the PTE election, with the June 15 prepayment now affecting credit size rather than election validity. Quarterly EDD Forms DE 9 and DE 9C. Statement of Information (Form SI-550) with the Secretary of State within 90 days of incorporation and annually thereafter, $25 fee, with a $250 penalty for failure to file.
Pass-through entity tax
Yes, and its status changed materially. California's PTE elective tax (AB 150) was scheduled to sunset after 2025. SB 132, chaptered June 27, 2025, EXTENDED the elective tax and credit for taxable years beginning on or after January 1, 2026 and before January 1, 2031, adding a new Part 10.4.1. The rate is 9.3% of qualified net income. The election is made annually on a timely filed original return by attaching FTB 3804; payments are made on FTB 3893. Critical 2026 change: for taxable years beginning on or after 1/1/2026, failing to make the June 15 prepayment (or underpaying it) NO LONGER voids the election — instead each qualified taxpayer's credit is reduced by 12.5% of their pro rata share of the amount due but not paid. Under the 2022–2025 rules, missing June 15 destroyed the election entirely. SB 132 also lets fiscal-year entities electing for 2025-2026 claim the credit in their 2026-2027 tax year.
The mistake owners make most often in California
Filing your federal Form 2553
Businesses operating in California send Form 2553 to the IRS Ogden service center — fax 855-214-7520. Full address and filing checklist for California.
Frequently asked questions
Does California require a separate S-corporation election?
No. California does not require a separate state election. California recognizes the federal S election automatically — there is no separate California election form. But recognition does NOT mean exemption, and California is the single most important state where an S corporation still owes substantial entity-level tax.
What tax does an S corporation pay in California?
1.5% S corporation franchise tax on California net income, with an $800 annual minimum franchise tax.
Where do I file Form 2553 from California?
With the IRS Ogden service center. Fax 855-214-7520, or mail to Department of the Treasury, Internal Revenue Service, Ogden, UT 84201.
What is the most common S-corp mistake in California?
The $800 minimum franchise tax is owed in loss years, in dormant years, and is not prorated for a short taxable year. The classic costly mistake: the owner stops operating or 'closes' the business but never formally dissolves with the Secretary of State and never files a final return with FTB — so the $800 keeps accruing every year, plus penalties and interest, often surfacing years later as a five-figure balance. A closely related trap is the widely repeated 'first year is free': the waiver covers only the $800 minimum, and 1.5% still applies to first-year net income.
Compare with other states: Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia.
Sources
File your Form 2553 correctly
Scorply completes your federal election and includes a California guide in your packet, so you know exactly what else you owe here.
Start my Form 2553Researched from official California sources and verified July 30, 2026. State tax rules change. This is general information, not tax advice — confirm with the state or a CPA before you rely on it.