What California Form 100S (2016) Is For
California Form 100S (2016) is the annual franchise or income tax return for S corporations subject to California tax laws. An S corporation passes most income, losses, deductions, and credits through to shareholders for federal purposes, but California still imposes an entity-level tax and requires this form.
For 2016, an S corporation generally pays the greater of the minimum franchise tax or the tax based on net income. The standard tax rate is 1.5% of net income (3.5% for financial S corporations), with an $800 minimum franchise tax. Built-in gains and excess net passive income are taxed at 8.84%, which can significantly increase total tax liability in some situations.
When You’d Use California Form 100S (2016)
You must file California Form 100S (2016) if your S corporation is incorporated or organized in California, qualified or registered with the Secretary of State, or doing business in the state. The $800 minimum franchise tax generally applies whether the corporation is active, inactive, has a loss, or files for a short period. Newly incorporated or qualified corporations are exempt from this minimum only in their first taxable year.
For calendar-year S corporations, the 2016 return was due March 15, 2017. California grants an automatic six-month extension to file, moving the deadline to September 15, 2017, but the extension does not extend time to pay. If you file late or pay late, penalties can apply even when you ultimately file a tax return under the extension.
Key Rules or Details for 2016
California tax rates and minimum franchise tax
For 2016, S corporations pay 1.5% of net income (3.5% for financial S corporations), with an $800 minimum franchise tax. The $800 minimum also applies per Qualified Subchapter S Subsidiary (QSub), so groups with multiple QSubs may owe multiple minimum amounts. Built-in gains and excess net passive income are taxed at 8.84% at the entity level and do not pass through to shareholders.
Doing business thresholds for 2016
An S corporation is considered “doing business” in California for 2016 if it is commercially domiciled in the state or meets any of these thresholds:
- California sales exceed $547,711 or 25% of total sales
- California property exceeds $54,771 or 25% of total property
- California payroll exceeds $54,771 or 25% of total payroll
These tests apply on a “greater of” basis, and you must include your pro rata share from partnerships and other S corporations when evaluating the filing requirements.
Conformity, e-filing, and record rules
California generally conforms to the Internal Revenue Code as of January 1, 2015, but does not conform to many later provisions, such as bonus depreciation under IRC Section 168(k), enhanced Section 179 expensing, the domestic production activities deduction, and certain qualified small business stock exclusions. This means you must make California adjustments when you file a tax return.
Any return prepared with tax software must be e-filed, and some S corporations must pay electronically via EFT, Web Pay, or credit card. Failure to e-file or to make required electronic payments can trigger a 10% penalty. Corporations filing on a water’s-edge or worldwide basis must keep detailed records; failure to maintain required records can result in a $10,000 penalty per year, plus an additional $10,000 for each 30-day period of continued noncompliance.
Step-by-Step (High Level)
Step 1: Gather financial and federal return data
Collect your 2016 financial statements, general ledger, and completed federal Form 1120S with all supporting schedules. You’ll need this information to compute California income, state adjustments, and tax liability.
Step 2: Compute trade or business income
Use Schedule F to calculate ordinary trade or business income if you keep separate California records or have no federal filing requirement. Enter gross receipts, subtract cost of goods sold, add other income, and deduct allowable business expenses to arrive at ordinary income or loss.
Step 3: Make California state adjustments
On Form 100S, lines 2–13, adjust for differences between federal and California law. Common changes include adding back state taxes deducted federally, adjusting depreciation, and handling nonconformity items like bonus depreciation or certain deductions. Attach schedules for any “other additions” or “other deductions.”
Step 4: Apportion multi-state income
If you operate in multiple states, complete Schedule R using the single-sales factor formula. Divide California sales by total sales everywhere to determine the percentage of business income taxable in California, then transfer the apportioned amount to Form 100S.
Step 5: Apply special deductions and calculate tax
Reduce income with allowable NOL carryovers and other special deductions, using Form FTB 3805Q if needed. Multiply the resulting income by 1.5% (or 3.5% for financial S corporations), and ensure the result is not less than the $800 minimum franchise tax plus any QSub annual taxes.
Step 6: Apply credits, determine balance, and file
Claim available credits on Schedule C, remembering that S corporations can generally use only up to one-third of credits generated and cannot reduce tax below the minimum franchise tax plus QSub taxes. Enter estimated payments, withholding, and extension payments, then compute any balance due or refund. Review, sign, and e-file or mail the return with all schedules and Schedules K-1 (100S) for shareholders.
Common Mistakes and How to Avoid Them
- Missing or incomplete supporting schedules
- Failing to pay the $800 minimum franchise tax or QSub annual taxes
- Using credits to reduce tax below the minimum franchise tax
- Skipping required state adjustments for California–federal nonconformity
- Not completing Schedule R when income is earned inside and outside California
- Leaving Schedule Q questions blank or partially answered
- Ignoring e-file and electronic payment mandates
What Happens After You File
Once Form 100S is filed, the Franchise Tax Board (FTB) processes the return and may send notices if items are missing or unclear. Providing accurate officer contact information helps resolve issues quickly and prevents unnecessary delays. If the return shows an overpayment, you may request a refund or apply it to next year’s estimated tax.
Interest accrues on unpaid tax from the original due date, even if you had an automatic extension to file. The FTB may examine your return within the normal four-year statute of limitations and assess additional tax, penalties, and interest if errors or understatements are found, including large corporate understatement penalties in significant cases.
If the S corporation fails to file or pay, the FTB can suspend or forfeit its powers, rights, and privileges. Operating while suspended can lead to a $2,000 penalty per year and contracts that are voidable by other parties. To restore good standing, all past due returns, payments, penalties, and interest must be resolved.
FAQs
When is a new S corporation first subject to the $800 minimum franchise tax?
A newly incorporated or qualified S corporation is not subject to the $800 minimum franchise tax in its first taxable year. It pays tax based solely on its net income at 1.5% (or 3.5% for financial S corporations). Beginning with the second taxable year, the $800 minimum franchise tax applies, regardless of income or activity level.
How do California apportionment rules affect multi-state S corporations?
For 2016, multi-state S corporations must use the single-sales factor formula to apportion business income. California sales are divided by total sales everywhere to determine the share of income taxable in the state. Schedule R is used to perform this calculation and to properly attribute income to California and other jurisdictions.
Can an S corporation use credits to eliminate its entire California tax?
No. Credits may reduce tax liability on net income but cannot reduce the total below the combined $800 minimum franchise tax plus any annual tax for QSubs. In addition, S corporations generally may use only up to one-third of the credits they generate at the entity level, with remaining credits often passing through to shareholders to claim on their individual income tax return.
What happens if I forget to attach federal Forms 5471 or 5472?
If California requires you to attach copies of federal Forms 5471 or 5472 and you fail to do so, the FTB may assess substantial information reporting penalties. The penalty is $1,000 per missing Form 5471 and $10,000 per missing Form 5472 for each year they are required. These penalties are in addition to any tax, interest, or other penalties.
When do I need to file Form 100X for an amended California return?
You must file Form 100X if you discover an error on a previously filed Form 100S or if the IRS changes your federal Form 1120S. California generally requires you to file the amended state return within six months of filing an amended federal return or receiving a final federal determination. Filing promptly helps limit additional interest and penalties on any extra income tax owed.
