California is an amazing place to own your own business. With its massive economy, the potential for growth feels endless. If you want to succeed, though, it’s important to understand rules and responsibilities, like the California franchise tax.
California’s franchise tax confuses more LLC owners than almost any other state obligation. It’s an unusual tax because it’s not based on how much money your business makes. Not only is the franchise tax not an income tax, it applies whether your California LLC made money or not.
There was formerly a waiver for LLCs formed between 2021 and 2023 that exempted them from the tax in their first year. That AB 85 waiver has expired. A new law, SB 122, cuts the first-year tax to $400 for LLCs whose first tax year begins in 2027, 2028 or 2029. LLCs whose first tax year begins in 2024 through 2026 owe the full $800 from their first year.
What is the California LLC franchise tax?
The California LLC Franchise Tax (officially the LLC annual tax) is a privilege tax for the right to operate as an LLC in California. Every LLC must pay this flat amount even if you did not conduct any business during the year, unless you cancel your LLC entirely. This tax applies regardless of revenue, profit, or activity.
The LLC franchise tax is completely separate from California income tax and other taxes you owe. The California Franchise Tax Board (FTB) administers the franchise tax, and also handles other important business.
Who has to pay the California LLC franchise tax?
Any LLC formed, registered or doing business in California must pay the California LLC Franchise Tax. Some businesses are formed in other neighboring states, such as Nevada or Wyoming, and believe they are exempt. But if those businesses operate in California, they are still subject to the franchise tax.
There are no meaningful exemptions for LLCs when it comes to the franchise tax. The only relief is for the first year: the AB 85 exemption for LLCs formed in 2021 through 2023 (now expired) and the reduced $400 first-year tax under SB 122 for first tax years beginning in 2027 through 2029. If you have any questions about the tax, you should speak with a legal and/or tax professional.
How much is the California LLC franchise tax?
The California LLC Franchise Tax is an $800 flat minimum, due regardless of revenue or activity. For LLCs whose first tax year begins in 2027, 2028 or 2029, the first year’s tax is $400.
There is also an additional LLC fee for any LLC with total California gross receipts of $250,000 or more. These are flat amounts too:
- $250,000–$499,999 in gross receipts: $900 fee
- $500,000–$999,999 in gross receipts: $2,500 fee
- $1,000,000–$4,999,999 in gross receipts: $6,000 fee
- $5,000,000 and up: $11,790 fee
These fees are separate obligations, not alternatives. You owe the $800 annual tax plus the LLC fee if your gross receipts are at least $250,000.
Figures can change over time, and you should verify with the FTB to make sure you meet your obligation. It’s also worth noting that there are other California LLC cost factors to be aware of.
New for 2027: a $400 first-year tax (SB 122)
SB 122, part of California’s 2026 budget package, was signed into law on June 29, 2026. It temporarily cuts the annual tax for an LLC’s first tax year from $800 to $400.
- Who qualifies: LLCs (as well as LPs and LLPs) whose first tax year begins on or after January 1, 2027, and before January 1, 2030.
- How much: $400 for the first tax year only. From the second year on, the regular $800 annual tax applies.
- What doesn’t change: the LLC fee based on gross receipts, the due dates, and the Statement of Information filing.
If you form your LLC late in 2026, check when your first tax year begins. A tax year that starts in 2026 doesn’t qualify, so you would owe the full $800 for that first year.
What happened to the AB 85 first-year exemption?
The state of California originally carved out an exemption, AB 85, that waived the $800 tax for the first year of LLCs formed between January 1, 2021 and December 31, 2023. That exemption expired, so LLCs formed from 2024 onward owe the tax from their first year.
Many guides still reference the old waiver, which can be confusing. The current relief is the smaller SB 122 reduction described above, which applies to first tax years beginning in 2027 through 2029.
When is the California LLC franchise tax due?
California makes it easy to know when to pay. During the first year, you owe the California LLC Franchise Tax by the 15th day of the 4th month after formation. Every year after that, you will pay the tax by April 15 (for calendar-year LLCs), the day people think of as Tax Day.
The estimated LLC fee based on gross receipts is due by the 15th day of the 6th month of the tax year (June 15 for calendar-year LLCs).
You may fall into a back-to-back payment trap if you form your LLC late in the year. For example, if you form your LLC in October, your first payment is due by January 15, and you will still need to pay the tax for the new year by April 15.
How to pay the franchise tax
It is easy to pay the California LLC Franchise Tax, but it is important to make sure you do it correctly to ensure the state gives you the correct credit. You will pay the annual tax with Form FTB 3522, while you will pay the gross receipts fee with Form FTB 3536. Your annual return will be on Form 568. All the forms are on the state website.
Keep in mind that payment and filing are separate. Submitting Form 568 does not substitute for Form 3522. California also allows you to file your documents online at no extra charge.
You can pay online at ftb.ca.gov or by mail.
What happens if you miss the deadline?
You can run into trouble by missing a deadline, by paying too little, or even by paying by mail if you were required to pay online. There are specific penalties you will face if any of those things were to happen.
Penalties
The most common FTB penalties for LLCs are:
- Late payment: 5% of the unpaid tax, plus 0.5% for each month it stays unpaid (up to 40 months), plus interest.
- Late Form 568 (for LLCs taxed as partnerships): $18 per member for each month the return is late, up to 12 months.
- Underpaying the estimated LLC fee: 10% of the underpayment.
What happens during suspension?
If your LLC doesn’t pay or file, the FTB can suspend it. When your business is suspended, you have no rights or privileges when it comes to doing business in California. You cannot operate, enforce contracts or defend yourself in court as the LLC.
Reinstatement of your LLC
If your LLC is suspended for nonpayment, you will need to take these steps:
- File all past-due tax returns
- Pay all outstanding taxes (including penalties and interest)
- Submit an application for Certificate of Revivor, Limited Liability Company (FTB 3557 LLC)
Missing the deadline is serious but it is a problem you can fix.
Common mistakes California LLC owners make
Here are a few common mistakes made by LLC owners:
- Expecting a full first-year exemption after AB 85 expired
- Assuming the $400 first-year rate applies to a first tax year that began before 2027
- Confusing franchise tax with income tax (see our overview of California LLC taxes)
- Missing the gross receipts fee deadline (June 15 for calendar-year LLCs)
- Assuming a dormant LLC owes nothing until formally dissolved
- Not filing Forms 3522 and 3536 separately from Form 568
How this fits into your broader LLC compliance
The franchise tax is just one piece of staying compliant in California. California, which has one of the largest economies in the world, has a large number of rules and regulations.
Just a few of the other important issues you need to understand include:
- having a California registered agent, who will be the contact person receiving legal mail for your business;
- the LLC Statement of Information, which you file within 90 days of forming and then every two years, and
- getting an EIN (Employer Identification Number). The EIN acts as the social security number for the business, allowing you to do important tasks such as paying taxes and hiring employees.
All of this can be overwhelming, especially for people who don’t have a business background. Companies like Tailor Brands exist just to help businesses with important tasks like LLC formation, getting an EIN, providing a registered agent, and ongoing compliance support. This takes the pressure off the LLC so you can focus on growing your business.
Conclusion
The California LLC Franchise Tax is predictable once you know the rules. $800 a year is a known cost of doing business in California, with a $400 first year for LLCs whose first tax year begins in 2027 through 2029. This is just one of your many responsibilities, though, and it is helpful to seek assistance from people who are accustomed to dealing with all these issues.
As always, you should verify current figures with the FTB or a tax professional. The penalties can be serious if you are not in compliance, but you can get the support you need to deal with all of these issues and have a thriving, successful business.