California franchise tax is a state tax imposed on certain businesses for the privilege of being organized, registered, or doing business in California. The California Franchise Tax Board (FTB) administers the tax. Despite its name, it does not apply only to franchise businesses such as restaurants or retail chains.
For many California businesses, the minimum annual amount is $800, even when the business is inactive or operates at a loss.
California Franchise Tax at a Glance
| Business type | Typical California tax |
|---|---|
| C corporation | Greater of $800 or 8.84% of California net income |
| S corporation | Greater of $800 or 1.5% of California net income |
| LLC taxed as a partnership or disregarded entity | $800 annual tax, plus a possible LLC fee |
| Limited partnership or LLP | $800 annual tax |
| General partnership | No California annual entity-level tax in most cases |
| Sole proprietorship | No separate franchise tax, but the owner may owe California personal income tax |
The amount depends on the business structure, California income, filing status, and any special rules that apply.
Who Must Pay California Franchise Tax?
A business may owe California franchise tax or a related annual business tax if it:
- Is incorporated or organized in California
- Is registered or qualified to do business in California
- Conducts business in California
- Receives California-source business income
An out-of-state corporation can owe California tax even if it was not incorporated in California. California generally treats a business as "doing business" in the state when it engages in a transaction for financial gain there or meets California sales, property, or payroll thresholds.
How Much Is the California Franchise Tax?
The amount depends on the entity type and its California net income.
C Corporations
A California C corporation generally pays the greater of:
- $800 minimum franchise tax, or
- 8.84% of California net income
The $800 minimum generally applies whether the corporation is active, inactive, or operating at a loss. Newly incorporated or qualified corporations generally do not owe the minimum franchise tax for their first taxable year, although first-year net income can still be taxable.
S Corporations
A California S corporation generally pays the greater of:
- $800 minimum franchise tax, or
- 1.5% of California net income
California taxes S corporations at the entity level even though S corporation income generally passes through to shareholders for federal tax purposes. Newly formed or newly qualified S corporations generally receive a first-year waiver of the $800 minimum tax, but first-year income may still be taxed.
LLCs
An LLC organized in California, registered with the California Secretary of State, or doing business in California generally pays an $800 annual LLC tax. The obligation continues each year until the LLC is properly cancelled or dissolved.
California temporarily waived the first-year $800 LLC tax for qualifying LLCs formed, registered, or filed with the Secretary of State during tax years beginning on or after January 1, 2021, and before January 1, 2024. That temporary exemption generally does not apply to LLCs formed in 2026.
What Is the California LLC Fee?
An LLC may owe an additional fee when its total California income reaches $250,000 or more. This fee is separate from the $800 annual LLC tax.
| Total California income | LLC fee |
|---|---|
| $250,000 to $499,999 | $900 |
| $500,000 to $999,999 | $2,500 |
| $1 million to $4,999,999 | $6,000 |
| $5 million or more | $11,790 |
The LLC fee is based on total California income, not simply the LLC's net profit. The estimated fee is generally due by the 15th day of the sixth month of the taxable year.
For example, an LLC with $300,000 of total California income could owe:
- $800 annual LLC tax
- $900 LLC fee
- Any additional tax owed by its members or owners on pass-through income
When Is California Franchise Tax Due?
The deadline depends on the business type and taxable year.
- C corporations: The tax return and payment are generally due on the 15th day of the fourth month after the taxable year ends.
- S corporations: The return and payment are generally due on the 15th day of the third month after the taxable year ends.
- LLCs: The $800 annual tax is generally due by the 15th day of the fourth month after the taxable year begins.
- LLC returns: The filing deadline depends on whether the LLC is taxed as a partnership, corporation, or disregarded entity.
For a calendar-year business, a C corporation's return is generally due on April 15 of the following year, while an S corporation's return is generally due on March 15. An extension to file does not automatically extend the payment deadline.
Is California Franchise Tax the Same as California Income Tax?
No. California franchise tax and income tax are related, but they are different taxes.
- Franchise tax is generally imposed on corporations for the privilege of doing business in California.
- Income tax is calculated from taxable income.
- California may calculate a corporation's liability using the greater of the minimum franchise tax or a percentage of California net income.
- LLCs usually pay an $800 annual tax and may also owe an LLC fee. Their owners may separately owe personal income tax on pass-through income.
A business can therefore owe the $800 minimum even when it has no profit.
What Businesses Generally Do Not Pay Franchise Tax?
A sole proprietorship is not a separate entity for California income tax purposes. The owner reports business income or losses on an individual California tax return instead of paying a separate corporate franchise tax.
A general partnership generally does not pay California's annual entity-level tax, although it may have filing obligations and its partners may owe tax on their shares of California income. Limited partnerships and limited liability partnerships generally have an $800 annual tax.
Which Forms Are Used?
Common California forms include:
- Form 100: C corporation franchise or income tax return
- Form 100S: S corporation franchise or income tax return
- Form 568: LLC tax return
- Form FTB 3522: LLC annual tax payment voucher
- Form 565: Partnership return for limited partnerships and other qualifying partnerships
The correct form depends on the entity's legal structure and federal tax classification.
Bottom Line
California franchise tax is a state business tax that commonly requires corporations to pay at least $800 per year. California LLCs generally pay a separate $800 annual tax, plus an LLC fee when total California income is at least $250,000.
A business can owe these amounts even when it is inactive or unprofitable. Closing or abandoning the business without properly filing cancellation documents can leave the tax obligation in place.