Proposed Bill May Change How California Taxes Microbusinesses

On February 19, 2016, California Assembly Member Lopez introduced Assembly Bill No. 2625 to amend certain sections of the Revenue and Taxation code related to the annual minimum franchise tax and microbusinesses. Specifically, it would reduce the annual tax for qualifying new microbusinesses according to a sliding scale, up to $600 annual tax for businesses with gross receipts less returns and allowances of more than $100,000 but less than $150,000.

According to analysis by the Assembly Committee on Appropriations, the goal of this bill is to "encourage small business and micro-businesses to incorporate in California." The current minimum franchise tax (MFT) is $800 per year, regardless of whether the registered business produces any income.

Members of the Assembly Committee on Revenue and Taxation were concerned about a lack of language in the proposed bill excluding subsidiary companies held by larger corporations from this reduced tax liability. Also, there is "no clear definition of a 'microbusiness' in California."

This bill is currently being reviewed by committee. For more information and updates on Assembly Bill No. 2625, click here.

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