Corporations that incorporated or qualified through the California Secretary of State (SOS) to do business in California aren't subject to the minimum franchise tax for their first taxable year. You can compute tax liability by multiplying the state net income by the appropriate tax rate. Check out this FTB booklet for more information about S Corporation tax liability.
Follow these steps to mark the California (CA) return as an initial return:
- Go to the Input Return tab.
- On the left-side menu, select State & Local.
- Click on Miscellaneous and select CA Miscellaneous.
- Scroll down to the California Miscellaneous section.
- Check the Initial return in California box.
- This entry tells the program to compute the S Corporation's tax liability using the rules for the first taxable year.