California's $800 Annual LLC Minimum Franchise Tax

California is one of the most expensive states in the country in which to operate a limited liability company. The California Franchise Tax Board (FTB) imposes a mandatory $800 annual minimum franchise tax on virtually every LLC that has any connection to California. This tax applies whether the LLC is a California LLC or an out-of-state LLC that has registered or is doing business in California.

The legal authority for this tax is California Revenue and Taxation Code Section 17941. That statute is straightforward: every LLC that is doing business in California, or that is organized or registered in California, must pay an annual tax of $800. The tax is not based on income. It is not based on whether the LLC is profitable or even active. It accrues every year the LLC continues to exist, and the full $800 is due even if the LLC operates for only part of a year.

The first-year exemption that existed between January 1, 2021, and December 31, 2023, under California Assembly Bill 85 (AB 85) has expired. LLCs formed or registered in California on or after January 1, 2024, owe the $800 in their first taxable year. There is no grace period for new LLCs as of 2024 and beyond.

The Additional Income-Based LLC Fee

The $800 minimum tax is just the floor. California also imposes a separate, graduated LLC fee on top of the $800 for any LLC with California-source gross income of $250,000 or more per year. This fee is authorized by California Revenue and Taxation Code Section 17942 and is calculated on gross receipts—not net profit. A low-margin LLC with $1 million in California-source revenue pays the same fee as a highly profitable LLC with $1 million in revenue.

The 2026 fee schedule is as follows:

These two obligations—the $800 annual minimum tax and the income-based LLC fee—are separate and both must be paid. An LLC with $3 million in California-source revenue owes $6,800 to the FTB before paying a dollar of California income tax on its profits.

The income-based fee is due on the 15th day of the 6th month of the taxable year (June 15 for calendar-year LLCs), paid using FTB Form 3536. The $800 annual tax is paid using FTB Form 3522 and is due by April 15 for calendar-year LLCs. All LLCs subject to California tax must also file Form 568, the Limited Liability Company Return of Income.

When Does a California Resident's Arizona LLC Have to Register in California?

A California resident who forms an Arizona LLC does not automatically trigger California's LLC registration requirement or the $800 annual tax. The decisive question is not where the LLC was organized—it is where the LLC conducts its business.

Under California Corporations Code Section 17708.02, a foreign LLC (meaning any LLC formed outside California) must register with the California Secretary of State before it begins "transacting intrastate business" in California. California defines transacting intrastate business as entering into repeated and successive transactions of business within California, other than interstate or foreign commerce.

Separately, the California Franchise Tax Board uses its own definition of "doing business" for tax purposes under Revenue and Taxation Code Section 23101. A company is doing business in California if it is actively engaging in any transaction for the purpose of financial gain within California, or if it meets certain sales, property, or payroll thresholds.

The California FTB actively audits LLCs it suspects are transacting California business without registering. If the FTB sends a notice informing an LLC that it has been doing business in California without filing a return, the LLC must file a return within 60 days or face a $2,000 penalty—in addition to back taxes, interest, and other penalties.

Activities That Do NOT Require Registration in California

California law expressly provides that certain activities do not constitute transacting intrastate business and do not require foreign LLC registration. Under California Corporations Code Section 17001(ap)(2), a foreign LLC is not transacting intrastate business merely by:

• Holding meetings of its members or managers or carrying on other activities concerning its internal affairs
• Maintaining bank accounts
• Soliciting or procuring orders, where those orders require acceptance outside California before becoming contracts
• Creating or acquiring debt, mortgages, or security interests in real or personal property
• Conducting an isolated transaction completed within 180 days that is not part of a course of similar, repeated transactions
• Effecting sales through independent contractors

Importantly, California Corporations Code Section 17001(ap)(3) specifically states that a person is not deemed to be transacting intrastate business merely because of their status as a member or manager of a foreign LLC. Simply being a California resident who holds a membership interest in an Arizona LLC does not, by itself, require the LLC to register in California or pay the $800 tax.

The Most Common Misconception: Forming an Out-of-State LLC Does NOT Avoid California's Tax

Many California entrepreneurs and business owners are told—often incorrectly—that forming an LLC in Wyoming, Nevada, Delaware, or Arizona will let them avoid California's $800 annual franchise tax. This advice is simply wrong in the vast majority of cases.

California taxes business activity, not LLC formation location. An LLC formed in any other state that operates in California, serves California customers from California, or is managed from California by a California resident is doing business in California and must register as a foreign LLC and pay all applicable California taxes.

This misconception has cost California business owners significant money in back taxes, penalties, interest, and professional fees to fix the problem after the fact. The California FTB is sophisticated and pays close attention to this issue.

How to Register an Arizona LLC as a Foreign LLC in California

If an Arizona LLC is required to register in California because it is doing business there, the registration process involves the following steps:

File Form LLC-5: The Arizona LLC must file an Application to Register a Foreign Limited Liability Company (Form LLC-5) with the California Secretary of State through the BizFile portal. The current filing fee is $70.

Provide a Certificate of Good Standing: The application requires a certificate of good standing (also called a certificate of status) from the Arizona Corporation Commission confirming that the Arizona LLC is in good standing in its home state. This certificate must have been issued within the prior six months.

Designate a California Registered Agent: The Arizona LLC must designate a registered agent with a physical address in California. If the LLC has no physical presence in California, it will need to hire a commercial registered agent service, which typically costs $100 to $300 per year.

File a Statement of Information: Within 90 days of registration, the foreign LLC must file a Statement of Information (Form LLC-12) with the California Secretary of State. The filing fee is $20. This form must be filed biennially (every two years) after that.

Register with the California Franchise Tax Board: The LLC must also register with the FTB for California tax purposes and begin paying the $800 annual minimum franchise tax and any applicable income-based fees.

Once registered, the Arizona LLC is subject to essentially the same California tax obligations as a California domestic LLC, to the extent of its California business activity.

How a California Resident Can Legally Avoid the California LLC Minimum Tax

A California resident can own and operate an Arizona LLC that is not subject to California's $800 annual LLC tax—but only if the LLC genuinely conducts its business outside California. This is a facts-and-circumstances test, not a formality test. The question is not what the operating agreement says; the question is what the LLC actually does and where it actually does it.

The following conditions, when genuinely met, support the conclusion that an Arizona LLC owned by a California resident is not doing business in California and is not required to register or pay the $800 annual tax:

Real-world examples of Arizona LLCs that California residents can validly own without triggering California's LLC registration and tax requirements include:

An Arizona rental property LLC: A California resident who owns and rents residential or commercial property in Arizona can hold that property in an Arizona LLC. The business activity—ownership and leasing of Arizona real estate—takes place in Arizona, not California.

An e-commerce LLC serving non-California customers: A California resident who operates an online business through an Arizona LLC, where the customers are located outside California and the LLC has no California inventory, employees, or operations, is generally engaged in interstate commerce rather than intrastate California business.

An investment LLC holding out-of-state assets: An Arizona LLC that holds investments, notes, or financial assets outside California may not constitute doing business in California, depending on the facts.

Consequences of Failing to Register a Foreign LLC in California

An Arizona LLC that is doing business in California without registering as a foreign LLC faces serious legal and financial consequences:

Loss of Court Access: An unregistered foreign LLC that is transacting intrastate business in California cannot bring or maintain a lawsuit in California courts. This means the LLC cannot sue a non-paying California customer, enforce a California contract, or pursue a California business dispute until the registration deficiency is cured and all back taxes and penalties are paid.

Back Taxes and Penalties: The California FTB can assess back taxes, interest, and penalties for all years the LLC was doing business in California without filing returns. If the FTB sends a notice, the LLC must respond within 60 days or face an additional $2,000 penalty.

Suspension or Forfeiture: The FTB may suspend or forfeit the LLC's authority to do business in California, which can prevent the LLC from entering into contracts or defending against lawsuits until the issue is resolved.

The cost of non-compliance almost always exceeds the cost of proper registration and annual compliance.

Arizona LLC Formation for California Residents: Working with an Arizona LLC Attorney

California residents who want to form an Arizona LLC need to think carefully about where their business actually operates before assuming they can avoid California's $800 annual franchise tax. The threshold question—is this LLC doing business in California?—requires honest analysis of the facts.

If the Arizona LLC genuinely operates outside California, no California registration or tax is required. If the business activity is in California, the Arizona LLC will need to register as a foreign LLC in California and pay California's taxes.

Richard Keyt is an Arizona LLC attorney who has formed more than 10,000 Arizona LLCs since 1979. He can form your Arizona LLC quickly and prepare a customized operating agreement that properly documents your LLC's structure and operations. If you are a California resident considering an Arizona LLC, Richard can discuss the facts of your situation and help you understand your California registration obligations before you form the LLC.

Frequently Asked Questions About California's LLC Minimum Annual Tax

What is California's minimum annual LLC tax?

California imposes a mandatory $800 annual minimum franchise tax on every LLC that is organized in California, registered to do business in California as a foreign LLC, or is actively doing business in California. This tax is owed every year the LLC exists, regardless of whether the LLC earns any income or even conducts any business that year.

Does a California resident who forms an Arizona LLC have to register it in California?

It depends entirely on where the business activity takes place. If a California resident uses an Arizona LLC to conduct business operations inside California—serving California customers, working from a California office or home, or directing business affairs from California—the LLC is "doing business in California" and must register as a foreign LLC with the California Secretary of State and pay the $800 annual tax. Simply owning an LLC organized in another state does not, by itself, trigger the registration requirement.

Can a California resident avoid the California LLC minimum tax by forming an Arizona LLC?

Yes, but only if the business is genuinely conducted outside California. If the Arizona LLC's customers, employees, contractors, and operations are entirely outside California—and the California resident member is not directing business activity from California—the LLC is not doing business in California and neither the registration requirement nor the $800 tax applies. However, if the business reality is that the member is running the business from California, simply forming the LLC in Arizona does not avoid California's tax obligations.

What additional fees does California charge on top of the $800 minimum tax?

In addition to the $800 annual tax, California charges a graduated LLC fee on total California-source gross income above $250,000. The fee is $900 for income between $250,000 and $499,999; $2,500 for $500,000 to $999,999; $6,000 for $1,000,000 to $4,999,999; and $11,790 for $5,000,000 and above. A foreign LLC registering in California must also file a Statement of Information ($20) and pay for a California registered agent, typically $100 to $300 per year.

What happens if an Arizona LLC owned by a California resident fails to register in California when it is required to?

An unregistered foreign LLC transacting intrastate business in California cannot bring or maintain a lawsuit in California courts. The California Franchise Tax Board can also assess back taxes, penalties, and interest. If the FTB sends a notice, the LLC must file a return within 60 days or face a $2,000 penalty. The cost of non-compliance almost always exceeds the cost of proper registration.

Does a California resident who is merely a member of an Arizona LLC that does business outside California have to pay the $800 tax?

No. Under California Corporations Code Section 17001(ap)(3), a person is not deemed to be transacting intrastate business in California merely because they are a member or manager of a foreign LLC. What matters is whether the LLC itself is conducting business activity within California—not simply where the member lives.

When is the California LLC minimum tax due?

For calendar-year LLCs, the $800 annual tax is due by April 15 of each year, paid using FTB Form 3522. For a newly formed or newly registered foreign LLC, the first payment is due on the 15th day of the 4th month after the LLC registers with the California Secretary of State. Since the AB 85 first-year exemption expired at the end of 2023, LLCs formed or registered on or after January 1, 2024, owe the $800 in their first taxable year.

Does forming an LLC in Wyoming or Nevada save a California resident from California LLC taxes?

No. This is one of the most common and costly misconceptions in LLC planning. California does not care where an LLC is organized—it taxes every LLC that does business in California. A Wyoming or Nevada LLC owned by a California resident who runs the business from California is doing business in California and must register as a foreign LLC and pay the $800 annual tax, plus any applicable income-based fees. The out-of-state formation simply adds a second state's compliance layer without eliminating California's obligations.

How does a California resident legally form an Arizona LLC that is not subject to the California LLC tax?

The Arizona LLC must genuinely conduct its business outside California. This means customers, contracts, services, employees, and operations are all located outside California, and the member is not directing the business from a California location. An Arizona LLC engaged in Arizona real estate, operations in other states, or online business with no California nexus can validly avoid California's LLC tax. An Arizona LLC attorney can form the LLC and prepare an operating agreement to document the proper structure.

Warning: Whether a particular Arizona LLC is or is not subject to California's registration requirement and $800 annual minimum tax is a legal and tax question governed by California law. The analysis is highly fact-specific and the consequences of getting it wrong—back taxes, penalties, interest, and loss of the right to sue in California courts—can be significant. Before forming an Arizona LLC with the intention of avoiding California's LLC tax, a California resident should consult with a California-licensed attorney and a California tax professional who can evaluate the specific facts of their business and provide advice under California law. This article provides general information only and is not a substitute for legal advice from a California lawyer.