Tax

California Small Business Franchise Tax Explained

The minimum $800 every California entity owes, and the layered taxes that surprise founders who form here without thinking it through.

By Aparna Devalla, CPA3 min · 5 slidesUpdated May 4, 2026

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The $800 Minimum Franchise Tax

Every LLC, corporation, and limited partnership formed in or doing business in California owes at least $800/year in franchise tax to the Franchise Tax Board (FTB).
First-year LLCs were exempt under AB 85 for tax years 2021–2023; that exemption has since expired, so new LLCs from 2024 onward owe the $800 in year one.
Due date: 15th day of the 4th month after entity formation, then annually thereafter (typically April 15 for calendar-year filers).
This is owed regardless of profit, revenue, or activity; it's the price of doing business in California.

Above the Minimum: Income-Based Add-Ons

C-corporations: 8.84% of net income (with the $800 minimum acting as a floor).
S-corporations: 1.5% of net income (minimum $800). The S-corp election doesn't eliminate California's tax; it just changes the rate.
LLCs: a separate 'LLC Fee' on top of the $800 minimum, scaled by California-source gross receipts: $900 (>$250K), $2,500 (>$500K), $6,000 (>$1M), $11,790 (>$5M).
LPs (limited partnerships): just the $800 minimum, no income-based add-on.
Sole proprietors and general partnerships: not subject to franchise tax (you'll pay personal income tax on the income instead).

Foreign Entity Trap

If you formed an LLC in Delaware or Wyoming for asset protection but operate in California, you must register as a 'foreign entity' with the California Secretary of State.
Once registered, you owe the SAME $800 minimum (plus LLC fee) to California, on top of any home-state fees.
Failing to register doesn't avoid the tax: California can assess back tax and penalties, and bar you from using California courts.
Many founders form Delaware LLCs and don't realize California's tax applies the moment they 'do business' here (broadly defined).

PTET: The State and Local Tax Workaround

California's Pass-Through Entity Tax (PTET) lets passthrough entities pay state tax at the entity level, sidestepping the $10K SALT cap on the owners' federal returns.
Election is annual, made on Form 3804 by the entity. The 9.3% tax is paid in two prepayments (June and March) and a final payment with the entity return.
Owners get a credit on their personal California return for their share of PTET paid.
For high-income owners in California, PTET typically saves $5K–$50K+ in federal tax. Not always worth it for low-income years; run the math.

Practical Tips

Don't form an entity in California 'just to test' the business; the $800 starts immediately, and there's no inactive exemption.
If you've decided to wind down, formally dissolve through the Secretary of State and file a final FTB return; otherwise the $800 keeps coming.
Pay the minimum and any LLC fee on time: the FTB charges a 5% per month late penalty (max 25%) plus interest, and it piles up fast.
California Revenue & Tax Code requires non-California owners of California passthroughs to file CA non-resident returns and may require withholding.
Need help with California entity tax? Rubric Financial files California entity returns, PTET elections, and dissolution paperwork.

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Educational content, not tax, legal, or accounting advice. Confirm with a CPA before acting.

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