California's $800 Franchise Tax Minimum: Why Businesses Are Fleeing

California charges every registered business entity $800 per year just for the privilege of existing in the state. No revenue required, no profit required, no activity required.

What the $800 Franchise Tax Actually Is

The California Franchise Tax Board requires every LLC, corporation, S-corporation, and limited partnership registered or doing business in California to pay a minimum franchise tax of $800 annually. This is not a one-time fee. It hits every tax year the entity is active.

For C-corporations, the tax is the greater of $800 or 8.84% of net income. S-corporations pay the greater of $800 or 1.5% of net income. LLCs pay the flat $800 minimum, plus an additional gross receipts fee that scales up sharply once revenue crosses $250,000.

The LLC gross receipts tiers as of 2026 look like this:

• $250,000 to $499,999: $900 additional fee
• $500,000 to $999,999: $2,500 additional fee
• $1,000,000 to $4,999,999: $6,000 additional fee
• $5,000,000 or more: $11,790 additional fee

A California LLC doing $1.2 million in gross revenue owes $6,800 in franchise taxes before a single dollar of state income tax is calculated.

Do You Have to Pay It Every Year?

Yes, with one exception. California waived the first-year $800 fee for LLCs formed on or after January 1, 2021. That exemption still applies in 2026, meaning a brand-new LLC does not owe the $800 for its initial tax year.

After that first year, the clock resets and the bill arrives every April 15, regardless of whether the business made money. A dormant LLC with zero revenue still owes $800. A startup burning through seed funding still owes $800. That reality pushes many founders to dissolve California entities rather than leave them open.

Failure to pay results in a penalty of 5% per month on the unpaid tax, up to 25% total, plus interest. The FTB can also suspend the business, stripping it of the legal right to enter contracts or defend itself in court.

How Businesses Try to Avoid It

The most common avoidance strategy is incorporation in another state, typically Wyoming, Nevada, or Delaware, and simply not registering to do business in California. This works only if the business has no physical presence, employees, or customers in California.

Wyoming LLCs have no state income tax and no annual franchise tax beyond a minimal registered agent fee, often under $60 per year. Nevada charges no corporate income tax. Delaware charges a flat franchise tax but its structure allows many small companies to minimize the bill well below $800.

The catch: if a Wyoming LLC is actually operating in California, which means its members live there, its sales are sourced there, or its office is there, California will assert that the entity is doing business in the state and owes the $800 regardless of where it was formed. Registering a foreign LLC in California triggers the same fee. California is aggressive about this and the FTB audits for economic nexus.

The cleanest escape is a full relocation. Move the business, the owners, and the operations out of California. That is exactly what thousands of companies have done.

Why Businesses Are Actually Leaving

The $800 minimum is rarely the only reason a business relocates, but it is frequently the trigger that starts the conversation. Combined with California's 13.3% top marginal income tax rate (the highest in the nation), a 8.84% corporate income tax rate, high commercial rents, and a regulatory environment that imposes compliance costs well above the national average, the franchise tax becomes one line item in a much longer case against staying.

Texas has no corporate income tax and no personal income tax. Florida charges no personal income tax and its corporate rate sits at 5.5%. Neither state imposes an annual minimum fee just for existing. For a founder running a lean operation, moving from California to Texas can save tens of thousands of dollars annually before the franchise tax even enters the calculation.

Our breakdown of the true cost of living in high-tax states shows how state taxes compound across income, property, and business costs. And our Florida vs. California tax reality post puts specific dollar figures on what business owners actually keep in each state.

Small businesses with thin margins feel this most sharply. A side business generating $15,000 per year in California profit loses more than 5% of gross revenue to the franchise tax alone, before any other state or federal tax.

Key Takeaways

• Every California LLC, corporation, and S-corp owes at least $800 per year in franchise tax, even with zero revenue, except in the LLC's first tax year.
• California LLCs with gross receipts above $5 million owe $12,590 in combined franchise tax and gross receipts fees annually.
• Texas and Wyoming impose no equivalent minimum annual business tax, making them the most common destinations for California business relocations.

Use our state tax calculator to run the numbers on what your business would owe in California versus your target state, and compare your full tax picture before making the move.