Every year, California business owners are surprised by the same bill: $800 owed to the Franchise Tax Board whether the company made money or not. The $800 annual or minimum franchise tax is the price of having a California entity, and misunderstanding its timing rules generates penalties that dwarf the tax itself. Here is who owes it, when, and how the first-year rules actually work.
Who owes the $800
The $800 tax applies to essentially every registered business entity organized, registered, or doing business in California:
- LLCs taxed as partnerships or disregarded entities owe an annual tax of $800 under Revenue and Taxation Code § 17941 for every taxable year they are organized in California, registered here, or doing business here;
- Corporations, including LLCs taxed as corporations, owe a minimum franchise tax of $800 under § 23153 — the floor on the regular franchise tax measured by income;
- Limited partnerships and LLPs owe an equivalent $800 annual tax under parallel provisions.
Two points catch people off guard. First, the tax is owed even by entities that are idle, unprofitable, or winding down — liability continues until the entity is formally dissolved or cancelled with the Secretary of State, not when you stop operating. Second, "doing business in California" is broad: an out-of-state LLC whose member manages it from Los Angeles, or that exceeds California's statutory sales, property, or payroll thresholds, owes the tax even though it was formed elsewhere. Forming in Nevada or Delaware while running the business from California does not avoid the $800; it usually just adds a second state's fees on top.
When it is due — including the first year
For an LLC, the annual tax is due by the 15th day of the 4th month of the taxable year, paid with FTB Form 3522. For a new LLC, its first taxable year generally begins when its Articles of Organization are filed, so the first payment is due by the 15th day of the 4th month of that taxable year. California briefly exempted newly formed LLCs, partnerships, and LLPs from the first-year tax, but that exemption applied only to taxable years 2021 through 2023 — LLCs formed now owe the $800 for year one.
Corporations work differently: a new corporation is not subject to the $800 minimum in its first taxable year and instead pays franchise tax measured by that year's net income (8.84% for most corporations, 1.5% for S corporations). The minimum kicks in from the second year onward. One more timing rule helps year-end formations: under the 15-day rule, an entity whose first taxable year is 15 days or less and that does no business in that period does not owe tax for that short year — which is why attorneys often file mid-December formations with delayed effect or in January rather than on December 1.
The LLC gross receipts fee — the tax on top of the tax
LLCs taxed as partnerships or disregarded entities with total income from California sources of $250,000 or more owe an additional annual fee under Revenue and Taxation Code § 17942, ranging from $900 to $11,790 depending on the bracket. Critically, the fee is based on total California-source income, generally gross receipts with limited adjustments, not profit — a high-revenue, low-margin LLC can owe the top fee in a year it lost money. The fee is estimated and paid during the year (Form 3536, due by the 15th day of the 6th month), and an underpayment penalty may apply if the payment is insufficient. For businesses with substantial revenue, this fee is a real factor in the LLC-versus-S-corporation math, since S corporations generally pay 1.5% of net income, subject to the $800 minimum after the first year, rather than the LLC fee.
What happens if you do not pay
Skipping the $800 does not make it go away; it compounds. The FTB adds penalties and interest, and continued noncompliance leads to FTB suspension of the entity. A suspended entity loses its powers: it cannot sue, defend litigation, or enforce its contracts, its name is exposed, and contracts made while suspended are voidable by the other party. Owners sometimes discover a years-old suspension only when a deal's due diligence flags it — reviving the entity then requires filing all missed returns and paying accumulated taxes, penalties, and interest. If you have a dormant entity you no longer need, the cheaper path is almost always a proper dissolution or cancellation that stops the annual tax from accruing.
Planning around it, legitimately
The franchise tax is unavoidable for an active California business, but planning still matters: time year-end formations to use the 15-day rule, dissolve entities you have outgrown before another January 1 rolls around, avoid stacking multiple entities that each owe $800 without a structural reason, and run the LLC-fee-versus-S-corp comparison once revenue grows. These are formation-stage decisions with recurring annual consequences — worth getting right once, at the start.
Talk to a California business attorney
Entity choice and timing decide what you will pay the FTB every year for the life of your business. Itkin Law structures California entities with those recurring costs in view. Schedule a free consultation or call (949) 418-2113.
This article is attorney advertising and provides general information only. It is not legal advice and does not create an attorney–client relationship. Facts matter; consult a lawyer about your specific situation.
