Is Your Corporation Earning California Source Business Income? Make Sure You Have a Certificate of Qualification

Many corporations earn business income in/from California, but fail to properly obtain a Certificate of Qualification from the California Secretary of State.

According to California’s Corporation Code Section 2105, in order for a foreign Corporation to transact intrastate business in the State of California, the foreign corporation must file the form “Statement and Designation by Foreign Corporation” (a link to the form can be found here). Once this form has been filed the California Secretary of State will issue a Certificate of Qualification.

In the past California never appeared to enforce the requirement that any foreign corporation transacting intrastate business have a Certificate of Qualification issued by the California Secretary of State, but with California’s growing fiscal problems they are looking for any way to increase state revenues and are beginning to enforce requirements like this. So if your corporation is earning income in California don’t be surprised if you receive a letter from the California Secretary of State requesting you to become compliant and pay up.

The Statement and Designation by Foreign Corporation will require A Certificate of Good Standing, issued within the last six months by the country where the foreign corporation was originally formed. This certificate is required to be attached to the Statement and Designation by Foreign Corporation when it is filed with the California Secretary of State. Canadian corporations can obtain a Certificate of Compliance from the Government of Canada. Information on obtaining a Certificate of Compliance can be found here.

In addition, the corporation will need to prepare and file Form SI-350 Statement of Information. This form must be filed with the California Secretary of State within 90 days after the foreign corporation has filed the Statement and Designation by Foreign Corporation. Instructions and a blank Form SI-350 can be found here.

Form SI-350 is then required to be filed annually thereafter by the foreign corporation during the applicable filing period. The applicable filing period is defined as the calendar month during which the initial Statement and Designation by Foreign Corporation was filed and the immediately preceding five calendar months. There is a $25 fee that is to be paid along with the form each year that it is filed. Failure to properly and timely file this form by the due date will result in a $250 penalty.

It is important to note that earning income from California or any U.S. state does subject the foreign corporation to state and federal tax laws and may subject the foreign corporation to additional federal and state filing and tax requirements.

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