Minimum franchise tax.

Senator Choi's proposal to restructure California's minimum franchise tax introduces a tiered system that reduces tax obligations for smaller corporations while maintaining current rates for larger entities. Beginning January 1, 2025, corporations with gross receipts under $2.5 million would pay $200 annually, while those with receipts between $2.5 million and $7.5 million would pay $400. Corporations with receipts between $7.5 million and $15 million would pay $600, and those exceeding $15 million would continue paying the existing $800 rate.

The legislation maintains the current $800 minimum franchise tax for limited partnerships, limited liability companies, and limited liability partnerships regardless of revenue. It preserves existing exemptions for specific entities, including credit unions and certain nonprofit agricultural cooperatives.

The Franchise Tax Board must submit annual reports to the Legislature starting December 1, 2026, tracking the number of small businesses affected by these changes. The bill includes provisions for determining gross receipts within commonly controlled groups and defines parameters for various business classifications.

For military service members who own small businesses, the bill extends tax relief during deployment periods when their businesses operate at a loss or cease operations. This provision applies to corporations and LLCs with California-sourced income under $250,000, though it becomes inoperative for corporations after January 1, 2025, and for LLCs after January 1, 2026.

The measure takes effect immediately upon enactment as a tax levy under the California Constitution, requiring the Franchise Tax Board to implement new collection and reporting mechanisms while maintaining existing enforcement structures for business dissolutions and withdrawals.