What Is the California Franchise Tax?
The California Franchise Tax is an annual tax levied by the California Franchise Tax Board (FTB) on businesses that are incorporated, organized, or doing business in California. It applies to most LLCs, corporations, limited partnerships, and other formal business entities operating in the state. Understanding this tax is essential for every California business owner — it's one of the state's primary business revenue sources and non-compliance can lead to serious penalties.
The $800 Minimum Franchise Tax
Regardless of revenue or profitability, most California business entities owe a minimum franchise tax of $800 per year. This applies even if your business has no income during the tax year. There are limited exceptions:
- New LLCs formed after January 1, 2021 are exempt from the $800 minimum for their first taxable year only.
- LLCs that are not actively doing business in California and are not registered with the SOS may be exempt (consult a tax professional for your specific situation).
- Certain nonprofit organizations may be exempt if they hold the appropriate tax-exempt status.
How Much Do Different Entities Pay?
| Entity Type | Tax Rate / Minimum | Notes |
|---|---|---|
| LLC | $800 minimum | Plus additional LLC fee if gross revenue > $250K |
| C-Corporation | 8.84% of net income (min. $800) | Minimum $800 even with no income |
| S-Corporation | 1.5% of net income (min. $800) | Lower rate than C-Corp |
| Limited Partnership | $800 minimum | No percentage-based tax |
The Additional California LLC Fee
LLCs with total California gross receipts over $250,000 owe an additional fee on top of the $800 minimum:
- $250,000 – $499,999: $900
- $500,000 – $999,999: $2,500
- $1,000,000 – $4,999,999: $6,000
- $5,000,000 or more: $11,790
This fee is separate from income tax and is based on gross revenue, not profit — meaning you owe it even if your LLC lost money during the year.
When Is the Franchise Tax Due?
For most calendar-year businesses, the franchise tax is due on April 15. However, the first-year minimum tax payment is due within a specific window after formation:
- LLCs must pay the $800 minimum on the 15th day of the 4th month after formation.
- Corporations generally pay estimated taxes quarterly: April 15, June 15, September 15, and December 15.
How to Pay the Franchise Tax
- File your California business tax return (Form 568 for LLCs, Form 100 for C-Corps, Form 100S for S-Corps) with the FTB.
- Pay online via the FTB Web Pay portal or by check.
- If you expect to owe more than $500 in taxes, you may be required to make estimated quarterly payments.
Penalties for Non-Payment
Failure to pay the franchise tax on time results in penalties and interest. Persistent non-payment can lead to the FTB suspending your business, which prevents you from doing business in California and can create significant legal complications.
Key Takeaway
The California franchise tax is an unavoidable cost of doing business in the state. Budget for the $800 minimum from day one, and plan for additional fees if your revenue grows. Working with a California CPA familiar with FTB requirements can help you stay compliant and avoid surprise penalties.