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Editorial 10 MIN READ

State filing-fee waivers and deadline extensions during COVID

Which states moved, which states didn't, and what a founder has to track through the summer of 2020

The Editors
Staff, Incorporator.org
10 min read Updated
Contents 7 sections
  1. What California actually signed
  2. Texas moved the franchise tax, not the filing fee
  3. New York extended the biennial, kept the LLC publication rule
  4. Ohio, Illinois, and the annual-report extenders
  5. What the IRS did, and why it flows through
  6. Where this leaves a founder in July 2020
  7. Sources

week after the July 15 federal tax deadline, the map of state COVID relief for business entities is finally legible. California has signed away the $800 minimum franchise tax for new LLCs for three years. Texas and the Franchise Tax Board both moved their spring deadlines to July 15 to mirror the IRS. A dozen other states quietly pushed annual-report due dates into the summer. The picture varies more than founders assume, and the COVID filing-fee and deadline relief a California LLC gets is very different from what a Texas LLC or a New York LLC received.

This piece walks the actual operative rules state by state, with citations, so that a founder, bookkeeper, or counsel can tell what applies to them and what is rumor.

What California actually signed

On June 29, 2020, Governor Newsom signed Assembly Bill 85 into law. The bill is an omnibus trailer to the 2020-21 budget, and most of its operative sections concern tax conformity, NOL suspension, and a three-year cap on business tax credits. For new businesses, the operative provision is Section 17 of the bill, which amends California Revenue and Taxation Code section 17941 to exempt an LLC from the $800 annual tax for its first taxable year when that first taxable year begins on or after January 1, 2021 and before January 1, 2024. The parallel amendments in Sections 15 and 16 extend the same first-year waiver to limited partnerships under R&TC section 17935 and to limited liability partnerships under section 17948.

Read that carefully, because the provision is narrower than the press release suggested. It does not waive the $800 tax for existing LLCs, and it does not apply to taxable years beginning in 2020. An LLC formed in July 2020 still owes the $800 for its 2020 tax year, on the normal schedule. An LLC formed on January 2, 2021, pays nothing for 2021 and is back on the normal meter starting 2022.

This matters for timing. A founder choosing between forming in the back half of 2020 and waiting until January owes the state $800 to skip four months. If the business is not yet generating revenue, the math will often favor waiting.

AB 85 also temporarily suspends net operating loss deductions and caps most business tax credits at $5 million per year for 2020, 2021, and 2022 (R&TC sections 17276.23 and 24416.23, added by Sections 8 and 13 of the bill). The NOL suspension applies to taxpayers with net business income above $1 million. For a founder thinking about an early-stage company with losses, those losses are not erased; they carry forward, and the carryforward window is extended by one to three years depending on the year the loss arose.

The Franchise Tax Board separately extended the April 15 filing and payment deadline for 2019 California income and franchise tax returns to July 15, 2020, matching IRS Notice 2020-18. FTB announced this on March 18, 2020 and again on March 27, 2020. That extension applied to returns and payments originally due on or after March 15 and before July 15, 2020, including estimated payments. It is a deadline move, not a fee waiver. The $800 is still owed; it is just owed ninety days later for 2019.

Texas moved the franchise tax, not the filing fee

The Texas Comptroller extended the 2020 franchise tax report and payment deadline from May 15 to July 15, 2020. The extension was automatic and applied to all taxable entities; no election or form was required. The Comptroller published the guidance on April 2, 2020, and again clarified it on April 15. The no-tax-due threshold for 2020 reports remains $1.18 million in annualized total revenue, and entities under that threshold still had to file the No Tax Due Report (Form 05-163) by the extended July 15 date.

Texas did not waive the $300 initial filing fee for a Certificate of Formation of a for-profit entity, and it did not waive the $750 foreign registration fee. The Secretary of State's office continued to operate, with most document filing moving online through SOSDirect and with walk-in service suspended. Turnaround on paper filings stretched from the usual two to three business days to roughly two weeks in April and May, which is worth pricing into any closing that depends on a Texas entity coming into existence on a date certain.

New York extended the biennial, kept the LLC publication rule

New York does not require an annual report from an LLC; it requires a biennial statement for domestic and foreign business corporations (N.Y. Bus. Corp. Law section 408) and a biennial statement for LLCs (N.Y. LLC Law section 301-E). The biennial fee is $9. On March 20, 2020, Governor Cuomo issued Executive Order 202.8, tolling "any specific time limit for the commencement, filing, or service of any legal action, notice, motion, or other process or proceeding." Subsequent executive orders (202.14, 202.28, 202.38, 202.48, and 202.55) extended that tolling through successive thirty-day increments into the summer.

The Department of State read those orders to cover biennial statements and other entity filings whose statutory deadlines fell during the tolling period. In practical terms, an LLC or corporation whose biennial was due in April or May 2020 was not in default for missing that window, provided the filing was made within the extended period. The $9 fee was not waived; only the timing was suspended.

New York's LLC publication requirement (N.Y. LLC Law section 206), requiring new LLCs to publish notice in two newspapers for six consecutive weeks and file a Certificate of Publication within 120 days of formation, was not suspended by the executive orders. The 120-day clock continued to run. Counsel forming LLCs in Manhattan or Brooklyn during the spring of 2020 found the newspapers operating and the certificate-of-publication process intact, even as other state business paused.

Ohio, Illinois, and the annual-report extenders

Ohio's Secretary of State, Frank LaRose, waived late-filing fees for business filings where the delay was attributable to COVID-related closures, under a March 27, 2020 directive. Ohio does not require a general annual report from LLCs or for-profit corporations (the state eliminated the corporate franchise tax and its corresponding report years ago), so the practical effect of the waiver was narrow. It applied primarily to professional associations under Ohio Revised Code Chapter 1785, which owe a biennial report, and to reinstatement filings where the triggering default occurred during the closure window. The $99 formation fee for an Ohio LLC was not waived.

Illinois provides a clearer case of an annual-report extender. On March 20, 2020, Governor Pritzker issued Executive Order 2020-07, and the Secretary of State's business services division announced that domestic and foreign corporations whose annual reports were due between March 1 and July 1, 2020 would not incur the statutory $100 late-filing penalty (805 ILCS 5/15.85) if filed by July 1, 2020. The underlying $75 annual-report fee for corporations and the $75 LLC annual-report fee continued to apply; only the penalty layer was waived. On June 26, 2020, the SOS extended the administrative hold on involuntary dissolutions tied to COVID-period defaults through the end of July.

A parallel pattern played out in smaller jurisdictions. Massachusetts extended corporate annual-report deadlines originally falling between March 10 and July 1, 2020, to July 1, 2020. The District of Columbia Department of Consumer and Regulatory Affairs extended the April 1 biennial-report deadline to June 1, then again to July 1. Michigan's Corporations, Securities & Commercial Licensing Bureau pushed the May 15 annual-statement deadline to July 15 for profit corporations and LLCs. None of these states waived the underlying fee. All of them waived the penalty.

What the IRS did, and why it flows through

The federal baseline is IRS Notice 2020-18, published March 20, 2020, which postponed the April 15, 2020 federal income tax filing and payment deadline to July 15, 2020 for any "Affected Taxpayer," defined to include any person with a federal income tax payment or a federal income tax return due April 15, 2020. IRS Notice 2020-23, issued April 9, 2020, extended that relief to a broader set of returns and payments due on or after April 1 and before July 15, including second-quarter estimated payments and Form 990 series returns for exempt organizations.

Most states conformed in whole or in part. California, New York, Massachusetts, Pennsylvania, Virginia, and more than thirty others matched July 15. Those that did not conform on income tax, notably Hawaii (which set its extended deadline at July 20) and Iowa (July 31), still generally conformed on federal estimated payments. For an LLC taxed as a partnership, the practical upshot was that Form 1065 for the 2019 tax year, originally due March 16, had already been extended on the IRS's March 20 notice; state conformity then pulled through to California Form 568, New York IT-204, Illinois IL-1065, and most other state partnership returns on the July 15 date.

The franchise-tax side is messier. California's $800 was due with the 2019 return on the extended July 15 date; the 2020 first installment, ordinarily due on the 15th day of the fourth month of the taxable year, was likewise moved to July 15 under FTB Notice 2020-02. Texas moved its report and payment by Comptroller notice. Delaware did not move its June 1 LLC tax deadline, and did not move the March 1 corporate annual-report and franchise-tax deadline, either. Delaware's position through the spring was that the online filing system was operating normally and the deadlines stood.

Where this leaves a founder in July 2020

The immediate question is compliance hygiene for this week. If you have a California return you did not file on April 15, file it or extend it today; FTB has said that automatic extension relief terminates at July 15. If you have a Texas franchise-tax report you did not file on May 15, including the No-Tax-Due Report, file it by July 15 or request a further extension on Form 05-164 by that date. If you have a New York biennial that came due in the spring, the tolling is ending in thirty-day increments under successive executive orders; file the $9 statement now and do not rely on further extensions. If you have an Illinois annual report whose original due date was between March 1 and July 1, the window to file without the late penalty ends July 1, and the SOS's administrative hold on dissolution for COVID-period defaults ends at the end of this month.

The strategic question for a California founder is whether to form now or wait. AB 85's first-year waiver for LLCs, LPs, and LLPs applies only to first taxable years beginning on or after January 1, 2021. An LLC formed in October 2020 will owe $800 for the 2020 tax year and $800 for 2021. An LLC formed on January 2, 2021, will owe nothing for 2021 (the statutory waiver) and $800 for 2022. For a business still wiring its operations together with no 2020 revenue, the waiver argues for waiting three months and saving $800. For a business already operating and merely formalizing, the $800 is already effectively committed.

There is a secondary question: whether the Legislature will extend the waiver beyond the 2023 taxable year. AB 85 on its face sunsets the first-year relief at the end of 2023, and the accompanying Senate Budget Committee analysis scores the relief at roughly $50 million per year in foregone revenue. Whether California chooses to renew that give-back in the 2023-24 budget cycle will depend on how the revenue picture looks then. Most practitioners are assuming the waiver does not renew and advising clients to form during the window. That is a defensible bet but not a certain one.

The general lesson from the spring of 2020 is worth keeping in mind as further relief cycles through: states moved deadlines more readily than they moved fees. Penalties were waived generously; formation fees, annual taxes, and registered-agent obligations largely were not. The federal July 15 date pulled most of the state calendar with it. A founder who tracked one deadline (July 15) and one substantive change (AB 85) caught the vast majority of what changed for a small business this quarter. The rest is texture.

Sources

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