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Last Updated: Nov 25th, 2007 - 10:09:00

Tax Clearance Certificate Requirement Eliminated

On September 29, 2006, the Governor signed Assembly Bill 2341 eliminating the need for a tax clearance certificate.

Affected entities:

• Corporations,
• Limited liability companies (LLC),
• Limited liability partnerships (LLP),
• Limited partnerships, and
• Not-for-profit corporations and exempt entities.

Effective/operative date:

• Effective September 29, 2006.
• Operative for taxable years beginning on or after January 1, 2006.

Specific provisions:

• Eliminates the tax clearance certificate beginning September 29, 2006.
• Allows entities to avoid the minimum franchise tax or annual tax for the current taxable year if:
  1. The entity files a timely final franchise or annual tax return for the preceding taxable year, including extension.
  2. The entity does not conduct any business after the end of the preceding taxable year.
  3. Within 12 months of the filing date of the timely final franchise or annual tax return the entity files appropriate paperwork with the California Secretary of State (SOS).
• For corporations, consider the filing of a final franchise tax return a request for information to dissolve or withdraw.
• Does not allow SOS to file an entity’s documents if the entity is suspended or forfeited with the Franchise Tax Board. These entities must pay all outstanding balances due, file any delinquent returns, and then request that the entity be revived to good standing.

If you have questions about a previous tax clearance request please contact us at:

Tax Clearance information: (916) 845-4124.

For information concerning how AB 2341 impacted the filing of dissolution, surrender, or cancellation documents with the SOS, please visit www.ss.ca.gov or call (916) 653-3795.

Publications 1038, 1038L, and 1038A - Instructions for Corporations Requesting a Tax Clearance Certificate are being updated to reflect the changes enacted by AB 2341. The current tax clearance related information in these publications no longer applies but the publications remain available for the SOS related information.

If you would like to read more about AB 2341, please visit the following:

http://www.ftb.ca.gov/law/legis/index.html

http://www.leginfo.ca.gov/bilinfo.html

To see the provisions that applied to taxable years that began prior to 1/01/2006, refer to Archive - Tax Clearance prior to 1/01/2006.