What Form 100S (2016) Is For
Form 100S (2016) is used by S corporations that are organized in, registered in, or doing business in California to report their annual franchise tax obligations to the California Franchise Tax Board. Although S corporations are generally pass-through entities for federal purposes, California imposes a state-level tax on the corporation’s net income, along with an $800 Minimum Franchise Tax. The form is required even if the business is inactive, operates at a loss, or files for only part of the year.
When You’d Use Form 100S (2016)
Form 100S (2016) must be filed in the following circumstances:
- Initial return filing: A newly formed or qualified S corporation must file this form in its first taxable year, even if exempt from the Minimum Franchise Tax during that year.
- Short-period return: An S corporation must file a return for any taxable period shorter than 12 months, such as when changing its fiscal year or dissolving before year-end.
- Payment for Automatic Extension for Corporations and Exempt Organizations: The corporation must submit full payment for taxes owed by the 15th day of the 3rd month, even though it automatically receives a six-month filing extension.
- Amending a prior return: If errors are found on a previously filed return or if the corporation makes changes to the federal return, the corporation must file Form 100X to amend the California return accordingly.
Key Rules or Details for 2016
The 2016 version of Form 100S includes several important California-specific tax rules:
- Minimum Franchise Tax: All domestic corporations, whether active or inactive, must pay an $800 franchise tax unless exempt in their first year of incorporation.
- Tax rate on net income: The standard tax rate is 1.5% for most S corporations, while financial S corporations are taxed at 3.5% on net income.
- Built-in gains and passive income: A separate tax rate of 8.84% applies to recognized built-in gains and excess net passive income from prior C Corporation periods.
- Mandatory e-filing: Any return prepared using tax software must be filed electronically with the California Franchise Tax Board.
- Electronic payment compliance: Corporations required to make electronic payments must use methods such as EFT, Web Pay, or credit card to avoid a 10% penalty.
- Single-sales factor apportionment: Multi-state S corporations must allocate income to California based solely on the ratio of California sales to total sales.
Step-by-Step (High Level)
S corporations filing Form 100S (2016) should follow these general steps to complete the process accurately:
- Gather financial and federal records: Collect gross receipts, expense reports, supporting schedules, and a copy of your federal Form 1120S to ensure all required data is available.
- Complete Schedule F: Calculate gross income and subtract allowable business expenses to determine ordinary income or loss, which is then transferred to Side 1, Line 1 of Form 100S.
- Apply California state adjustments: Make adjustments for depreciation, capital gains, and any California-specific additions or deductions using Lines 2 through 13 of the form.
- Determine apportioned income: If your business operates in multiple states, complete Schedule R using the single-sales factor method to identify California-source income.
- Apply net operating loss and other deductions: Deduct prior year net operating losses and other special deductions, using Form FTB 3805Q when applicable.
- Compute tax liability: Multiply taxable income by the applicable tax rate, making sure to include the $800 Minimum Franchise Tax and any $800 QSub payments.
- Claim tax credits: Complete Schedule C and report up to one-third of eligible credits on Lines 22–24 without reducing tax below the minimum threshold.
- Calculate final balance due or overpayment: Add all prior tax payments, including estimated costs and credits, and determine whether you owe additional tax or are due a refund.
- Assemble and attach supporting documentation: Include all relevant California schedules, a copy of the federal return, and any Forms 5471 or 5472 as required.
- Sign and file the return: A corporate officer must sign the return and file it electronically if prepared using software, or mail it to the Franchise Tax Board if paper filing is permitted.
Common Mistakes and How to Avoid Them
Avoiding common errors when filing Form 100S (2016) will help prevent delays, penalties, and compliance issues:
- Missing required schedules: Attach all required schedules, including Schedules B, C, D, K-1, and federal Forms 5471 and 5472.
- Incorrect calculation of the Minimum Franchise Tax: Include the required $800 payment and any applicable QSub franchise tax amounts.
- Overclaiming tax credits: Limit credits to one-third of the 1.5% tax, and do not reduce tax below the minimum amount due.
- Omitting California-specific adjustments: Apply all required state adjustments, including limits on bonus depreciation and Section 179 deductions.
- Neglecting Schedule R for multistate operations: Use Schedule R to properly apportion income earned outside California.
- Leaving Schedule Q incomplete: Complete all required fields, including business activity codes and accounting details.
- Ignoring e-filing or e-payment requirements: File and pay electronically when required to avoid penalties.
- Not rounding figures to whole dollars: Round all amounts according to California instructions.
What Happens After You File
After submitting Form 100S (2016), the California Franchise Tax Board begins processing the return and may issue correspondence requesting clarification or documentation. Most processing is completed within 10 weeks, and corporations can track refund status using their tax account information online.
If a refund is due, it may be issued via check or direct deposit, provided the correct banking details are supplied. Interest continues to accrue on unpaid balances from the original due date, regardless of extensions.
FAQs
When does the $800 Minimum Franchise Tax start for newly formed S corporations?
The $800 Minimum Franchise Tax begins in the second taxable year unless the entity reorganizes solely to avoid the payment obligation.
Can an S corporation eliminate its franchise tax liability using tax credits?
No, tax credits may only reduce the tax based on net income and cannot eliminate the $800 Minimum Franchise Tax or the required payment for each Qualified Subchapter S Subsidiary.
How does California determine taxable income for S corporations operating in multiple states?
California applies a single-sales factor formula, using only California sales as a percentage of total sales to calculate the portion of taxable income attributable to the state.
What entity types besides corporations are subject to California franchise tax rules?
Limited liability companies, limited partnerships, professional corporations, and other Limited Liability Entities may also be subject to franchise tax depending on their classification and activity level.
What happens if an S corporation fails to file its Statement of Information?
Failure to file the required Statement of Information with the California Secretary of State can result in suspension of corporate powers, delayed refund status, and potential penalties from the Franchise Tax Board.
