A qualified real estate investment trust subsidiary (QREITS) is not subject to the California minimum franchise tax under Rev. & Tax. Code §23153, according to informal guidance from the California Franchise Tax Board. A QREITS and its parent real estate investment trust (REIT) are treated as a single tax entity for California tax purposes. In addition, because the QREITS is disregarded as a separate entity for California income tax purposes, its activities are the activities of its parent REIT for purposes of Rev. & Tax. Code §23101 (doing business). Thus, a QREITS’s parent REIT is subject to the minimum franchise tax, but the QREITS itself is not subject to the tax.
Legal Division Guidance 2011-06-02, California Franchise Tax Board, June 2011