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California LLC Fee and Franchise Tax: The $800 Minimum, the Gross Receipts Fee, Worked Example

By The Ledgerism Editorial Team · The Ledgerism Brief Editorial Team produces original, methodology-disclosed accounting and tax research—data trackers, databases, and reference guides built to be the most-cited source in the field. Every figure is verified against primary sources including FASB, the IRS, the PCAOB, NASBA, the AICPA, and state boards of accountancy.

The California LLC fee is the gross-receipts-based charge that California imposes on limited liability companies on top of the $800 annual minimum franchise tax, and together the two can cost a profitable LLC more than $12,000 a year. Both are owed for the privilege of doing business in California, regardless of whether the LLC turned a profit. Understanding the two-part structure, the income tiers, and the timing is essential for anyone forming or running an LLC in the state.

What is the California LLC fee and franchise tax?

California imposes two distinct charges on limited liability companies, and they are often confused with each other. The first is the annual minimum franchise tax of $800. The second is the LLC fee, a separate amount that scales with the LLC’s California-source gross receipts. An LLC can owe just the $800 if its income is low, or it can owe the $800 plus a fee of up to $11,790 if its income is high. The two together are the cost of operating an LLC in California.

The $800 minimum franchise tax is the floor. It is owed by every LLC that is doing business in California or that is organized or registered with the California Secretary of State, even if the LLC is dormant, lost money, or did no business at all during the year. It is set by Revenue and Taxation Code section 17941 and is collected by the Franchise Tax Board.

The LLC fee is the second layer. It is set by Revenue and Taxation Code section 17942 and applies only once the LLC’s total income reaches $250,000. The fee is not a tax on profit. It is keyed to total income, a measure close to gross receipts from California sources, which is why a business with thin margins, or even a loss, can owe a substantial fee on top of the $800.

The combination makes California one of the most expensive states in which to operate an LLC. A single-member LLC with no employees and modest revenue still pays $800 a year. A profitable operating LLC can pay $12,590 a year ($800 plus the $11,790 top fee) before it has paid a dollar of income tax on its members’ distributive shares.

Who is affected and who must comply

The two charges reach a broad set of LLCs:

• LLCs organized under California law.
• Out-of-state LLCs registered to do business in California.
• Out-of-state LLCs that are doing business in California even without registering, measured by California’s economic-presence standards (sales, property, or payroll thresholds).
• Single-member LLCs that are disregarded for income tax purposes; they are still LLCs for the franchise tax and owe the $800 and any applicable fee.

An LLC that has elected to be taxed as a corporation is treated differently: it pays the corporate franchise or income tax regime rather than the LLC fee, though the $800 minimum franchise tax floor still applies to most corporations as well. An LLC that has elected S corporation or C corporation treatment should confirm which regime applies; the federal classification choice is made on Form 8832 entity classification election (or Form 2553 for S status), and that choice changes the California tax that follows.

The obligation falls on the LLC, and the members are generally protected from the entity-level tax by limited liability, but a manager or member who controls the LLC’s funds can face collection pressure if the tax goes unpaid. Founders setting up a California LLC as part of launching a practice or business should plan for the $800 from the first year forward; our guide on how to start a CPA firm covers the entity-selection and recurring-compliance decisions that drive this cost.

The clearest way to escape the charges is not to be an LLC doing business in California. A business that operates elsewhere and has no California nexus owes nothing to the Franchise Tax Board. But mere economic activity in the state, even without a physical office, can constitute doing business and trigger the $800.

How the California LLC charges work (mechanics)

The two charges run on different schedules and different bases, which is the source of most filing errors.

The $800 minimum franchise tax. This is a flat amount, the same for every LLC regardless of size. It is due by the 15th day of the fourth month of the LLC’s tax year. For a calendar-year LLC, that is April 15. The payment is made with Form 3522, the LLC Tax Voucher. The $800 is owed every year the LLC is in existence, including the year of formation (subject to the now-expired first-year exemption discussed below) and including a final short year, unless the LLC properly cancels.

The LLC fee. This is the variable charge tied to total income. Total income for this purpose means gross income plus the cost of goods sold, sourced to California, and it is not reduced by deductions or expenses. The fee is set in tiers:

• Total income under $250,000: $0 fee.
• $250,000 to $499,999: $900.
• $500,000 to $999,999: $2,500.
• $1,000,000 to $4,999,999: $6,000.
• $5,000,000 or more: $11,790.

Because the fee depends on income the LLC may not know precisely until year end, California requires an estimated fee payment by the 15th day of the sixth month of the tax year (June 15 for a calendar-year LLC), made with Form 3536. If the estimated payment is less than the actual fee, an underpayment penalty applies. Any remaining balance is settled with the annual return.

The annual return, Form 568. Every California LLC files Form 568, the Limited Liability Company Return of Income, which reconciles the $800 minimum tax, the LLC fee, and the members’ distributive shares. Form 568 is generally due by the 15th day of the third month after the close of the tax year (March 15 for a calendar-year LLC), with an automatic extension available, although the extension does not extend the time to pay.

The LLC fee tiers

The table below sets out the complete California LLC fee schedule and the combined cost when the $800 minimum tax is added.

The structure is a step function, not a smooth percentage. An LLC at $249,999 of total income owes only the $800, while an LLC at $250,000 owes $1,700, a $900 jump from a single additional dollar of income. The same cliff exists at each tier boundary. Because the fee is on total income rather than profit, a high-volume, low-margin LLC, such as a reseller or a pass-through trading entity, can sit in a high tier while earning very little net income, which makes the fee feel especially heavy relative to the bottom line.

Worked example

Assume Pacific Goods LLC, a California-organized single-member LLC, has $1,400,000 of total income from California sources for the calendar year, with $1,250,000 of cost of goods sold and operating expenses, leaving $150,000 of net profit.

The $800 minimum franchise tax. Pacific Goods owes the flat $800, due April 15 of the tax year, paid with Form 3522. This is owed regardless of income or profit.

The LLC fee. The fee is based on total income, which here is $1,400,000. That falls in the $1,000,000 to $4,999,999 tier, so the fee is $6,000. Note that the fee is computed on the $1,400,000 of total income, not on the $150,000 of net profit. Pacific Goods must estimate and pay this $6,000 by June 15 using Form 3536, then reconcile on Form 568.

Combined entity-level cost. The LLC owes $800 plus $6,000, for $6,800 of California entity-level charges before any income tax on the member’s $150,000 distributive share. If Pacific Goods had instead earned $5,000,000 of total income on the same thin margin, the fee would jump to $11,790 and the combined cost to $12,590.

The example shows why the fee is so often underestimated. A founder thinking in terms of profit ($150,000) might budget for a small fee, but the fee is keyed to the $1,400,000 of gross income. The member also owes California personal income tax on the $150,000 distributive share separately; the $6,800 is purely the cost of having the LLC do business in the state.

Recent changes (2025 to 2026 law changes)

The most consequential recent change is the expiration of the first-year $800 exemption. Assembly Bill 85, enacted in 2020, temporarily waived the $800 minimum franchise tax for an LLC’s first taxable year for LLCs that organized or registered in 2021, 2022, or 2023. The relief was designed to lower the cost of forming a business during and after the pandemic. The exemption was not extended. LLCs formed in 2024 and later owe the $800 minimum tax in their first year, just as they did before AB 85. Founders who recall hearing that California waives the first-year tax should understand that the waiver expired with the 2023 cohort.

The $800 minimum tax amount, the LLC fee tiers ($900 / $2,500 / $6,000 / $11,790), and the $250,000 starting threshold have remained stable into 2026. These figures are set by statute, and any change would require legislation, so practitioners should confirm the current amounts against the Franchise Tax Board’s Form 568 instructions for the filing year. The 15-day-of-the-fourth-month due date for the $800, the 15-day-of-the-sixth-month estimated fee date, and the Form 568 return due date have likewise held steady.

One persistent practical point is the so-called 15-day rule. An LLC that organizes within the last 15 days of its tax year and does no business during that period is not required to file a return or pay the $800 for that short year, a narrow relief that survives independently of the expired AB 85 exemption.

Common pitfalls

• Assuming the first year is free. The AB 85 first-year $800 exemption applied only to LLCs formed in 2021 through 2023 and was not extended. LLCs formed in 2024 or later owe the $800 in year one (Cal. Rev. & Tax. Code §17941 as amended by AB 85, exemption now lapsed).
• Computing the LLC fee on net profit. The fee under §17942 is based on total income (gross receipts sourced to California), not on net profit. A profitable-looking but high-revenue LLC can land in a much higher tier than its margin suggests.
• Missing the June 15 estimated fee payment. The LLC fee must be estimated and paid by the 15th day of the sixth month using Form 3536. Underpaying the estimate triggers an underpayment penalty even if the balance is paid with the return.
• Confusing the due dates of the $800 and the fee. The $800 is due the 15th day of the fourth month (Form 3522); the estimated fee is due the 15th day of the sixth month (Form 3536); the return (Form 568) is due the 15th day of the third month after year end. Mixing them up causes late payments.
• Forgetting to pay while on extension. The automatic extension for Form 568 extends the time to file, not the time to pay. The $800 and the fee remain due on their original dates, and interest accrues on unpaid amounts.
• Not cancelling a dormant LLC. The $800 accrues every year the LLC exists. An owner who stops using an LLC but never files a certificate of cancellation keeps owing $800 annually until it is formally dissolved.
• Overlooking doing-business nexus for out-of-state LLCs. An LLC organized elsewhere can owe the $800 if it is doing business in California under the state’s sales, property, or payroll thresholds, even without registering with the Secretary of State.

Frequently asked questions

What is the difference between the $800 tax and the LLC fee?

The $800 is the flat annual minimum franchise tax every California LLC owes (§17941). The LLC fee is a separate, additional charge that scales with total income and applies only once the LLC reaches $250,000 of California-source total income (§17942). A small LLC pays only the $800; a high-revenue LLC pays both.

Is the LLC fee based on profit or revenue?

Revenue. The fee is keyed to total income, meaning gross receipts sourced to California, not net profit. An LLC with high revenue and low margins can owe a large fee even with little or no profit.

Does my LLC owe the $800 in its first year?

If it was formed in 2024 or later, yes. The first-year exemption created by AB 85 applied only to LLCs formed in 2021, 2022, and 2023 and was not extended. The narrow 15-day rule still exempts an LLC organized in the last 15 days of the year that does no business.

How much is the maximum LLC fee?

$11,790, which applies to LLCs with $5,000,000 or more of California total income. Added to the $800 minimum tax, the maximum combined annual entity-level cost is $12,590.

When are the California LLC charges due?

The $800 minimum tax is due the 15th day of the fourth month of the tax year (Form 3522). The estimated LLC fee is due the 15th day of the sixth month (Form 3536). The annual return, Form 568, is due the 15th day of the third month after year end.

Does a single-member LLC owe these charges?

Yes. Even though a single-member LLC is disregarded for income tax purposes, it is still an LLC for the franchise tax. It owes the $800 and any applicable LLC fee and files Form 568.

What form reports the LLC fee and franchise tax?

Form 568, the Limited Liability Company Return of Income, reconciles the $800 minimum tax, the LLC fee, and the members’ distributive shares. The $800 is paid with Form 3522 and the estimated fee with Form 3536.

Can I avoid the $800 if my LLC is dormant?

Generally no. The $800 is owed every year the LLC exists, even if it did no business. To stop the obligation, the owner must formally cancel the LLC with the Secretary of State.