The $800 California LLC Tax: What You Need to Know

If you're forming an LLC in California — or operating a business there — you've probably heard about the $800 franchise tax. It's real, it's annual, and it catches a lot of new business owners off guard. Here's everything you need to know.

What Is the $800 Franchise Tax?

California imposes an annual minimum franchise tax of $800 on every LLC registered to do business in the state. This applies regardless of whether your LLC earns any revenue. Even if your business loses money, you still owe $800 to the California Franchise Tax Board (FTB).

This is separate from state income tax. If your LLC earns more than $250,000 in gross revenue, you'll also pay an additional LLC fee ranging from $900 to $11,790 on top of the $800 minimum. The combined taxes can be significant:

The First-Year Exemption

Good news for new LLCs: California exempts LLCs from the $800 franchise tax during their first taxable year. This exemption has been in effect since 2021 and remains active in 2026.

Important details:

• The exemption only applies to the first taxable year
• Starting in your second year, the $800 is due by the 15th day of the 4th month (usually April 15)
• The LLC fee (for revenue over $250K) still applies in the first year
• If you form your LLC in December, your "first year" is just December — and the $800 kicks in January 1st

Pro tip: if you're planning to form a California LLC, consider timing. Forming in January gives you nearly 12 months of exemption. Forming in November gives you less than two months.

Does Forming in Another State Help?

This is the most common question — and the answer almost always disappoints people.

If you're physically operating in California, forming in another state does NOT avoid the $800 tax.

Here's why: California requires any LLC "doing business" in the state to register as a foreign LLC and pay the franchise tax. "Doing business" includes having an office, employees, or customers in California. If you live in California and run your business from there, you're doing business in California — regardless of where your LLC is formed.

So if you form in Wyoming to avoid the $800 tax but operate from Los Angeles, here's what actually happens:

• You pay Wyoming's $100 formation fee + $60/year annual report
• You foreign-qualify in California: $70 filing fee
• You pay the $800 California franchise tax anyway
• You pay for registered agents in two states
• You file in two states

Net result: you pay more than if you'd just formed in California.

When Forming Out-of-State Actually Works

There are legitimate scenarios where a non-California LLC avoids the $800 tax:

• You don't live in California and have no physical presence, employees, or significant business there
• You're forming a holding company that owns assets but doesn't operate in California
• You've moved out of California and no longer conduct business there (you can withdraw your California registration)

But be careful: California has an aggressive interpretation of "doing business." Having customers in California, selling to California residents online, or owning California real estate through your LLC can trigger the filing requirement.

When the Franchise Tax Is Due

The $800 franchise tax is due by the 15th day of the 4th month after the beginning of the LLC's tax year. For calendar-year LLCs (most of them), that means:

• April 15 — Payment for the current year (yes, you're paying in advance)
• Filed with Form 3522 (LLC Tax Voucher)

Miss the deadline and you'll face penalties and interest. The FTB charges a 5% penalty for late payment, plus interest at about 5% annually.

Can You Avoid the Franchise Tax Legally?

Not really, if you're operating in California. Your options are:

1. Don't form an LLC. Sole proprietorships and general partnerships aren't subject to the franchise tax. But you lose liability protection.
2. Form an S-Corp instead. S-Corps pay a minimum franchise tax of $800 too — but the tax savings from reduced self-employment tax (at higher incomes) may offset this.
3. Move your business out of California. If you relocate to a state without franchise taxes, you can withdraw your California registration.
4. Accept it as the cost of doing business in the largest state economy in the US. California has 40 million consumers. The $800 is essentially a flat tax for access to that market.

Practical Advice for California LLC Owners

Budget for it from day one. Set aside $67/month for the franchise tax. It's a predictable, unavoidable cost.

Don't panic about it. $800/year ($67/month) is the cost of a modest software subscription. If your business can't absorb $67/month, you may have larger issues to address.

Consider the timing of formation. Form early in the calendar year to maximize your first-year exemption period.

Don't form in another state just to avoid it. You'll almost certainly end up paying it anyway, plus extra fees for multi-state registration.

At Sedes, we explain all state-specific costs — including California's franchise tax — during the formation process. No surprises after checkout.