The Real Cost of a California LLC: The $800 Franchise Tax Explained
California charges just $70 to form an LLC, which sounds like a bargain. Then the Franchise Tax Board sends its first bill: $800 a year, every year, whether your business earns a dollar or nothing at all.
California is the most expensive state in America to maintain an LLC, and outdated guides make it worse by promising a first-year exemption that expired years ago. Here are the real 2026 numbers, and the deadlines that come with them. Budget at least $890 for the first year, and read on to keep every deadline.
The $800 Franchise Tax, Explained
Every LLC organized in California, registered with the Secretary of State, or doing business in California owes an $800 annual franchise tax to the Franchise Tax Board. It is a flat tax for the privilege of operating here, not a tax on profit. There is no legal way to operate in California and skip the $800.
For calendar-year LLCs the payment is due April 15 each year on voucher FTB 3522. In your first year, it is due by the 15th day of the fourth month after you file. Form in July and your first $800 is due in October. File and pay through the California Secretary of State and the Franchise Tax Board portals.
The “First Year Free” Rule Is Gone
From 2021 through 2023, new California LLCs were exempt from the $800 tax in their first year under AB 85. That exemption expired on December 31, 2023. An LLC formed in 2026 owes the full $800 starting in year one.
If a guide still promises a free first year, check its date. It is working from expired law. One narrow escape still exists: cancel the LLC within twelve months of forming it using the short-form cancellation, and the first-year tax is waived.
Every California LLC Fee on One Timeline
| When | What | Cost |
|---|---|---|
| At formation | Articles of Organization (Form LLC-1) | $70 |
| Within 90 days | Statement of Information (Form LLC-12) | $20 |
| 15th day of 4th month | First $800 franchise tax (FTB 3522) | $800 |
| Every April 15 | Annual franchise tax | $800 |
| Every 2 years | Statement of Information renewal | $20 |
| Above $250K CA income | LLC gross receipts fee | $900 to $11,790 |
The Gross Receipts Fee Nobody Mentions
Once your California gross receipts reach $250,000, a second annual fee kicks in on top of the $800. It scales from $900 up to $11,790 and is calculated on gross receipts, not profit, which surprises high-revenue, low-margin businesses.
The brackets: $900 from $250,000 to $499,999; $2,500 up to $999,999; $6,000 up to $4,999,999; and $11,790 at $5 million and above. Estimate it on Form 3536 by June 15 or face a 10 percent penalty for underpaying. Still choosing a structure? The SBA’s business structure guide lays out the alternatives.
The $20 Statement of Information
Within 90 days of forming, every California LLC must file a Statement of Information (Form LLC-12) with the Secretary of State. It lists your managers, agent, and business address. The fee is $20, and you refile it every two years.
Missing the 90-day window is an easy unforced error. File it the same week you form the LLC and the deadline never becomes a problem. Late filings draw penalties and can push the LLC out of good standing.
Penalties: What Late Really Costs
California punishes late payment on two fronts. The Franchise Tax Board adds penalties and monthly interest to unpaid tax, and a 10 percent penalty applies to underpaid estimated gross receipts fees. Separately, the Secretary of State can suspend an LLC that ignores its Statement of Information.
A suspended LLC cannot sue, defend itself in court, or get a certificate of good standing, yet it still owes the $800 for every year it exists. Falling behind does not pause the meter. It just adds penalties to the bill.
What Counts as Doing Business in California
California defines doing business broadly. A physical office, warehouse, or employee in the state clearly counts. So do regular in-person sales meetings, and in many cases significant sales into California even without a physical presence.
The state uses sales, property, and payroll thresholds to establish nexus, and they are lower than most founders expect. If any meaningful part of your operation touches California, budget for the $800 rather than hoping you slip through.
Can You Dodge the $800 by Forming Elsewhere?
No, not if you operate in California. The Franchise Tax Board treats any LLC doing business in the state as owing the tax, regardless of where it was formed. A Wyoming LLC with a California warehouse, employee, or office owes California’s $800 plus Wyoming’s fees.
Worse, you would also have to register as a foreign LLC in California and pay its fees on top. If you live and work in California, forming in California is the cheapest legal option. Our home-state analysis walks through the math, and our Delaware fee guide covers the other premium state founders ask about.
S-Corp Election: Does It Help?
Electing S-corp taxation does not erase the $800. California S-corps pay a 1.5 percent net income tax with an $800 minimum, so the floor is the same. The election can still save money on self-employment tax at higher profit levels, but it is a tax strategy, not a fee dodge.
Run the numbers with a CPA before electing. The paperwork and payroll requirements of an S-corp add real cost, and for a side business netting under $50,000 it rarely pays off.
Frequently Asked Questions
How do I pay the $800 franchise tax?
Pay online through the Franchise Tax Board’s Web Pay system or mail voucher FTB 3522 with a check. Calendar-year LLCs pay by April 15. In your first year, the deadline is the 15th day of the fourth month after formation. Keep the confirmation for your records.
What happens if I do not pay?
Penalties and interest stack up monthly, and the FTB can file a state tax lien. Your LLC also falls out of good standing, which blocks certificates of good standing and can complicate loans, contracts, and lawsuits.
Is an operating agreement really required in California?
Yes. California is one of the few states that legally requires every LLC to have an operating agreement. You do not file it with the state, but you must have one, and banks will ask for it.
How long does it take to form a California LLC?
Online filings through the Secretary of State’s bizfile portal typically approve in three to five business days. Mail filings take weeks. Twenty-four-hour processing costs $350 and same-day costs $750.
How do I stop the $800 if I close the business?
File dissolution or cancellation paperwork with the Secretary of State and file a final tax return. Simply stopping operations does not stop the tax. The FTB keeps billing until the entity is formally closed.
What is Form 568?
Form 568 is the California Limited Liability Company Return of Income, the annual tax return every LLC files with the Franchise Tax Board. It reports income, calculates the gross receipts fee, and accompanies the $800 payment. Even LLCs with no income file it.
Can I pause my LLC instead of dissolving it?
No. California has no pause button. An LLC in suspended or forfeited status still owes the $800 for every year it exists, plus penalties. The only way to stop the tax is to formally dissolve or cancel the entity and file a final return.
Is California worth it despite the $800?
For most California residents, yes, because the alternative is paying the $800 anyway as a foreign LLC plus fees in a second state. The tax buys access to the world’s fifth-largest economy and its courts. The founders who regret it are the ones who formed in California for a business that operates entirely elsewhere.
Does the $800 apply to out-of-state LLCs?
If the LLC is doing business in California, yes. Nexus rules look at sales, property, and payroll in the state, and California’s thresholds are lower than most founders expect. When in doubt, talk to a California CPA before assuming you are exempt. Compare all 50 states in our 50-state fee table.
