California's $800 surprise hits every business — even with $0 revenue
If you formed an LLC in California, registered a foreign LLC there, or your out-of-state business does business in California, you owe $800 a year. No revenue floor, no small-business exception, and no first-year break for LLCs anymore. The Franchise Tax Board (FTB) charges the $800 minimum franchise tax even if your business made nothing, did nothing, and you forgot it existed. Penalties for ignoring it stack fast — late fees, interest, entity suspension, and a Certificate of Revivor process to bring it back.
Who owes the $800 minimum
The $800 minimum franchise tax applies to almost every business entity that is either formed in California or doing business in California. That includes:
The treatment difference matters: a C-Corp formed in 2026 owes $0 minimum in year one. An LLC formed in 2026 owes the full $800 in year one. This is the source of one of the biggest myths in California business — that "AB 85" still gives new LLCs a first-year pass. It does not. AB 85's first-year LLC exemption applied only to entities formed between January 1, 2021 and December 31, 2023. It expired. Every LLC formed in 2024, 2025, or 2026 owes the full $800 in its first year.
When the $800 is due
The due date depends on whether you formed your entity this year or in a prior year.
This creates the "back-to-back" trap that surprises new LLC owners: you can pay $1,600 within seven months if you form mid-year. Forming late in the year makes it worse, not better: an LLC formed December 1, 2026 has a one-month first taxable year that still costs the full $800, due by March 15, 2027, and the next $800 is due by April 15, 2027. The only short-year relief is the 15-day rule: no annual tax is due for a taxable year of 15 days or less if the LLC does no business in California during that period. If your timing is flexible, forming in early January gives you a nearly full first year for the same $800.
For S-Corps and C-Corps, due dates align with the income tax return: March 15 for S-Corps (Form 100S) and April 15 for C-Corps (Form 100). The minimum franchise tax is prepaid through estimated tax payments (Form 100-ES); if your estimated tax does not exceed $800, the full $800 is due by the 15th day of the 4th month of the tax year.
The LLC fee on top of the $800
If you operate as an LLC and your California-source gross receipts exceed $250,000, you owe an additional LLC fee on top of the $800 minimum. This fee is based on gross receipts, not profit — so an LLC operating at a loss can still owe it.
$250,000 – $499,999: $900 LLC fee (total $1,700)
$500,000 – $999,999: $2,500 LLC fee (total $3,300)
$1,000,000 – $4,999,999: $6,000 LLC fee (total $6,800)
$5,000,000 and above: $11,790 LLC fee (total $12,590)
Critical: this fee is on gross receipts, not profit. A break-even or loss-making LLC still owes it.
The LLC fee is reported on Form 568 and paid via Form 3536 by the 15th day of the 6th month of the tax year (June 15 for calendar-year LLCs). Underpayment penalties apply if you estimate too low. The LLC fee applies only to LLCs taxed as partnerships or disregarded entities — LLCs that have elected S-Corp or C-Corp status pay corporate tax instead.
The "doing business in California" trap for out-of-state founders
This is where most non-California business owners get blindsided. You don't have to be physically located in California to owe the $800. Under California Revenue and Taxation Code §23101, you are "doing business in California" if any one of these is true:
- You actively engage in transactions for profit in California — broad and fact-specific.
- You are organized or commercially domiciled in California.
- Your California sales exceed approximately $757,070 (2025 threshold), or 25% of total sales, whichever is less. The threshold is indexed annually for inflation; check the FTB's Doing business in California page for the current year's figures.
- Your California real or tangible personal property exceeds approximately $75,707, or 25% of total property.
- Your California compensation paid exceeds approximately $75,707, or 25% of total compensation.
The most overlooked trigger is inventory. If you sell on Amazon and Amazon stores any of your inventory in a California fulfillment center, you have physical presence — even if you've never set foot in the state. The California Office of Tax Appeals confirmed in a December 2025 opinion (Appeal of Fishbone Apparel, Inc.) that FBA inventory in a California warehouse created "doing business" status for a seller with only about $9,400 in California sales.
California-based contractor or remote employee: even one person
California rental property held in your LLC: property in CA = nexus
Investment in a California partnership or LLC: distributive share counts toward thresholds
Crossing the sales threshold by accident: hitting ~$757K in CA online sales for one year creates an obligation
Worked example: Out-of-state LLC selling into California
You own a Wyoming LLC and sell physical goods through your website. You live in Nevada. In 2026, your total revenue is $800,000, of which $120,000 came from California customers. You also store some inventory in an Amazon FBA warehouse in Tracy, California.
Here's what California assesses:
- Sales threshold: Your $120,000 in CA sales is below the indexed dollar threshold ($757,070 for 2025), and below 25% of your $800,000 total ($200,000). Sales threshold alone does not trigger nexus in this case.
- Physical presence: Your inventory in the Tracy FBA warehouse creates physical presence under R&TC §23101(a) — "actively engaging in transactions for profit." This alone triggers "doing business" status, regardless of sales volume.
- What you owe: $800 minimum franchise tax. The LLC gross receipts fee applies only on California-source receipts; with $120,000 in CA gross receipts you fall below the $250,000 threshold, so the LLC fee is $0.
2026 California liability: $800. You also need to register your foreign LLC with the California Secretary of State (Form LLC-5, $70 fee), file Form 568 by April 15, 2027, and pay the $800 via Form 3522. If you've operated this way since 2023 without filing, you owe $800 × 4 years = $3,200 in back franchise tax, plus 5% per month late filing penalty (capped at 25%), plus interest, plus per-member late filing penalties on Form 568. Three to four missed years routinely runs $5,000–$8,000 by the time the FTB issues a notice.
If you're already late: what to do
If your LLC has been racking up unpaid franchise tax for years, three things are happening: unpaid $800-per-year amounts, late penalties, and likely entity suspension. Once suspended, your entity loses the right to do business, sue, or defend a lawsuit in California courts. To revive it, you file Form 3557 (Application for Certificate of Revivor) and pay all back tax, penalties, and interest.
If the LLC is inactive and you want to walk away cleanly, the right move is dissolution — not abandonment. The franchise tax keeps accruing every year your entity is on the SOS records. To stop the meter:
- File a final tax return (Form 568) and check the "Final Return" box.
- Pay the $800 for the final tax year.
- Conduct no business in California after the last day of that tax year.
- File Form LLC-4/7 (Certificate of Cancellation) with the California Secretary of State within 12 months of the final return.
Do all four steps and the franchise tax stops. Skip any step and the $800 keeps accruing — the FTB regularly collects from entities that "stopped operating" five or more years ago, with $4,000+ in back tax plus penalties owed when the owner finally tries to clean up.
Common mistakes
- Believing AB 85 still exempts new LLCs. It expired December 31, 2023. New LLCs in 2026 owe the full $800 in year one. Older articles online repeat the expired rule.
- Confusing the corporation rule with the LLC rule. New C-Corps and S-Corps don't owe the $800 minimum in year one — but new LLCs always do.
- Forming the LLC mid-year and paying double. Forming in June creates a back-to-back $800 + $800 within seven months. Forming in November or December is worse: the short first year still costs the full $800, and the next $800 follows within months. Forming in early January, or within the last 15 days of the year with no California business in that period, avoids paying for a short first year.
- Assuming "no California address" means no California obligation. Inventory, contractors, or sales above the threshold all create "doing business" status regardless of where you live.
- Ignoring the entity instead of dissolving it. Walking away does not stop the $800. Only formal dissolution + Form LLC-4/7 within 12 months stops accrual.
Frequently asked questions
Yes. The $800 minimum franchise tax is a flat tax that applies regardless of revenue, profit, or activity. Even a dormant LLC owes $800 every year until it's formally dissolved with the California Secretary of State.
No. The AB 85 first-year exemption applied only to LLCs formed between January 1, 2021 and December 31, 2023. It was not renewed. Every LLC formed in 2024 and later owes $800 in its first taxable year. C-Corps and S-Corps do still get a first-year exemption from the $800 minimum (separate, permanent rule under R&TC §23153) — but the 1.5% S-Corp tax or 8.84% C-Corp tax on net income still applies in year one.
Only if you don't meet any "doing business" trigger under R&TC §23101. If you have California inventory (including Amazon FBA), California-based contractors or employees, California real estate held by the LLC, or California sales above the indexed threshold (approximately $757,070 in 2025), you owe the $800 — even if you live and operate from another state. Forming a Wyoming or Delaware LLC doesn't avoid this; you simply register as a foreign LLC in California and pay both states. See our guide on C-Corp vs S-Corp for how this interacts with federal tax treatment.
You owe $800 for the final tax year regardless of when in the year you dissolve. To stop further accrual, file the final Form 568, pay the $800, and file Form LLC-4/7 with the Secretary of State within 12 months of the final return. Miss any step and the FTB keeps charging $800 each year.
Late payment penalty is generally 5% of the unpaid tax, plus 0.5% per month (up to 25% maximum), plus interest at the FTB-published rate (7% annually for 2026). For Form 568 itself, there's also a per-member late filing penalty of $18 per month per member, up to 12 months. An LLC that ignores the $800 for two years can easily owe $1,800-$2,500 once penalties and interest stack up.
For S-Corps and C-Corps, you pay the greater of the minimum franchise tax or the income-based tax — so if your 1.5% S-Corp tax or 8.84% C-Corp tax exceeds $800, the $800 is essentially absorbed into the larger amount. For LLCs taxed as partnerships or disregarded entities, the $800 is separate from any other tax and does not offset federal or California personal income tax.
This article provides general information about US tax topics and is not a substitute for personalized advice from a qualified tax professional. Tax law changes frequently — verify current rules with a tax professional before filing or making decisions based on this content.
