Do I still have to pay franchise tax if I didn’t do any business in a state where my company is incorporated or qualified to do business?

This is a real trap for the unwary. The answer is yes, you still have to pay franchise tax even if you didn’t do any business or have any revenue for the taxable year in question, and it can be an expensive mistake not to pay the required tax. In California, for example, every corporation must pay a minimum franchise tax of $800 every year after its first taxable year. In a host of appeals filed by unwitting taxpayers, the California State Board of Equalization has repeatedly ruled that a corporation is liable for the minimum franchise tax even if the corporation did not conduct any business or have any income in the taxable year. Taxpayers who fail to pay the minimum franchise tax are subject to various penalties in California. And if the corporation is an S corporation, there are additional, and much more significant, federal penalties. We detailed just how much the state and federal penalties can add up in our article Pre-Revenue Companies Must Pay Taxes and File Tax Returns.