Did you know the taxes you pay help to keep parks green, roads safe, and make the top-notch schools around you? The franchise tax board in the state of California makes sure that the money By managing and collecting these taxes, the board has become the economic engine for the state.
collected from the taxes supports essential services like education, healthcare, and public safety.
In this blog, you will learn about the Franchise tax board, its history, functions, benefits, and many other related questions that can save an enterprise from paying penalties.
What Is the Franchise Tax Board?
Franchise Tax Board is a government agency in the state of California (US) responsible for administering personal and corporate income tax laws. It plays a crucial role in managing California’s tax system, which helps to fund state programs and services through effective tax collection.
Many people connect it with the IRS because of their similar functionality. But they both are quite different. This board operates at the state level rather than the federal. California Franchise Tax Board states that its mission is to “help taxpayers file tax timely, accurately”, and pay only the correct amount to the fund services.
How the Franchise Tax Board Started?
The Franchise Tax Board was created in 1950 to make tax collection more efficient in California. Before that, the Board of Equalization (BOE) handled the taxes, but as the corporate industry grew, a new system needed to be added.
The Franchise Tax Board started by managing the personal income tax and the corporate franchise tax. Over time with more expansion, it began to include other tasks like collecting child support payments and overseeing various tax credits and deductions.
The board was controlled by three officials to operate the system smoothly and fairly. They were:
- California State Controller
- Director of California Department of Finance
- Chairperson of the California State Board of Equalization
The state controller and the chairperson of the Board of Equalization are elected officials, while the Director of the Department of Finance is appointed by the Governor of California.
It was started with an objective in favor of Californians that:
- They don’t need to pay extra taxes
- Help people understand and follow the tax laws
- Provide good service to the taxpayers.
Today, they have modernized their processes by using advanced technologies like online fillings and electronic payments.
Primary Function of Franchise Tax Board
The board is responsible for administering two of California’s major tax programs: Personal income tax and Corporation tax. It also administers other nontax programs and vehicle registration debt collection on behalf of the Department of Motor Vehicles and court-ordered debt collection. Now have a look at its primary function:
- Collecting Taxes: The board collects taxes from individuals and businesses operating within California.
- Enforcing Tax Laws: It ensures compliance with California’s tax laws by auditing returns, collecting unpaid taxes, and collecting penalties for non-compliance.
- Processing Tax Returns: It processes state tax returns filed by individuals and corporations, issuing refunds or collecting additional taxes.
- Providing Taxpayer Assistance: It offers various services for the taxpayers to understand and comply with the tax laws including educational and customer support.
How is Franchise Tax Board Different From Other Income Tax Boards?
To understand the difference between these boards, you need to first understand the difference between franchise tax and income tax. Unlike state income taxes, franchise taxes are not based on a corporation’s profit. A business entity must have to pay and file franchise taxes independent of whether they are making a profit or not. On the other hand, income taxes depend on how much an organization makes during the year. For your convenience, here is a clear comparison.
| Features | Franchise Tax Board | Other Income Tax Board |
| Scope | It administers California-specific taxes: personal income tax, corporate franchise taxes, etc. | It administers the state income taxes across broader jurisdictions. |
| Technological Advancements | It uses technology tailored to Californians, including online fillings, electronic payments, and other digital taxpayer resources. | It utilizes technology to manage tax fillings, payments, and compliance across broader jurisdictions. |
| Public Outreach | Engages in outreach campaigns, educational programs, and customer services. | Conduct national or statewide outreach campaigns to inform taxpayers about tax laws and their importance. |
| Responsibilities | Manages programs like child support tax and transport tax collections. | Focus entirely on income tax collection, no additional tax collection is involved. |
| Governance Structure | Governed by a three-member board where two of them were appointed by the governor. | Governed by federal authorities or state-specific structures showcasing national or statewide mandates. |
Benefits of Paying Taxes to the Franchise Tax Board
- It acts as a Legal Document: Paying tax to the tax board holds immense legal value. It is recorded with the government and acts as legal proof in two ways:
- Identity Proof: The return you fill out can become identity proof when you’re applying for any new identities, like driving licenses or any other. The government accepts it as proof of address as well.
- Income Proof: It can be used as income proof as some transactions, such as property purchases where you need to show your proof of income.
- Help you while applying for the loans: When you apply for a loan to purchase something, say a car, or home for your family, there are many documents banks ask for. One such document is income proof. This confirms your past and current financial situation and whether you’ll be able to pay the loan or not.
- Avoid Penalty and Punishment: If you’re paying your taxes timely, the chances of paying penalties or extra charges get nil.
- Helps in planning to go abroad: Having a history of filing taxes timely helps you improve your chances of getting visa approval easily. It gives financial details to the embassy.
Conclusion:
Franchise Tax Board is a government agency that collects taxes from individuals and corporations in the state of California. It works as the heart of the economic engine in California that supports in growth of the state in several ways. Paying taxes may hurt for a moment, but if you see its benefits, you will be happy to do it in favor of your surroundings. It indirectly works for you.
