Security deposits no longer required for California startups, some deposits to be released

SACRAMENTO, Calif. - New corporations and LLCs in California are no longer required to pay security deposits and will release many of the deposits collected.

Senator George Runner announced Friday that 22 deposits in Bakersfield will be released in the amount of $252,171. Those are non-cash security deposits like liquid deposits, surety bonds and personal guarantees.

The Board is authorized by state law to collect security deposits from new and existing businesses in case a business defaults on tax payments to the Board. However, of the nearly $300 million in security on deposit with the state, only a small percentage was drawn down each year—making the program no longer cost effective for the state.

Depending on the type of security released, taxpayers may need to contact their financial institution, insurance agent or broker to complete the process of cancelling their deposit.

In December 2013 the Board of Equalization voted unanimously to end the security deposit requirements the Board had previously imposed on new California corporations and LLCs.
 
The required security had typically equaled half a year’s worth of expected taxes and ranged from $2,000 to $50,000 per company. 
 
The Board’s December action immediately ended deposit requirements for nearly all new businesses and startups. Under the new policy, the Board will require security only when a business has a history of non-payment or poses a high compliance risk.
 
Most states do not impose automatic security requirements. California’s requirements had been among some of the most sweeping in the nation.

“We’re currently writing to more than 4,000 taxpayers who made non-cash security deposits, like bonds and TCDs, to let them know they are no longer required to post security,” said Runner. “These non-cash deposits exceed more than $40 million statewide.”

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