California’s so-called LLC gross receipts tax is officially the “LLC fee,” a tiered annual charge that ranges from $900 to $11,790 depending on how much California-sourced income your LLC brings in. It applies to any LLC not taxed as a corporation once total income attributable to California reaches $250,000, and it sits on top of the separate $800 annual franchise tax every California LLC already owes.1California Legislative Information. California Revenue and Taxation Code 17942
The fee is imposed under Revenue and Taxation Code 17942 on every LLC that also owes the $800 annual tax under RTC 17941. That covers any LLC registered with the California Secretary of State or doing business in the state, unless the LLC has elected to be taxed as a corporation. If yours has, you fall under California’s corporate franchise tax rules instead and don’t owe this fee.2California Legislative Information. California Revenue and Taxation Code 17941
How California Defines the Income That Triggers the Fee
This is where owners get caught out. The fee is not based on profit, and it is not based on gross receipts the way most people use that term. California defines “total income” for LLC fee purposes as gross income plus the cost of goods sold.1California Legislative Information. California Revenue and Taxation Code 17942 The formula adds COGS back in rather than subtracting it. A product-based LLC with $800,000 in gross revenue and $400,000 in cost of goods sold ends up with a total income figure that includes that $400,000, pushing it into a higher bracket than the net numbers would suggest.
Gross income itself is broad. It covers sales of goods, services, rent, interest, dividends, and other income-producing activity.3Franchise Tax Board. Income Types for Businesses Operating expenses, payroll, and other deductions don’t reduce total income for fee purposes. An LLC operating at a loss can still owe the fee if its top-line revenue is high enough.
Only California-Sourced Income Counts
The statute reaches “total income from all sources derived from or attributable to this state,” not worldwide income.1California Legislative Information. California Revenue and Taxation Code 17942 For an LLC doing all its business in California, that’s the same as total revenue. For multi-state LLCs, the distinction matters. California uses market-based sourcing under RTC 25136, which assigns revenue based on where the customer receives the benefit of the service or product, not where the LLC is located.4Legal Information Institute. California Code of Regulations Title 18 Section 25136-2 A consulting firm based in Nevada that serves California clients counts that revenue as California income.
The Fee Brackets
The fee is a flat amount within each bracket, not a percentage. Cross a threshold and you owe the full amount for that tier:1California Legislative Information. California Revenue and Taxation Code 17942
- $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
These amounts come on top of the $800 annual franchise tax. An LLC with $5 million or more in California-sourced total income pays $12,590 per year before any income tax. The fee doesn’t scale within a bracket. An LLC earning $251,000 and one earning $498,000 both pay $900.5Franchise Tax Board. Limited Liability Company
When You Pay
Three separate dates matter, and they don’t line up.
The $800 Annual Tax
Due by the 15th day of the 4th month after the beginning of the current tax year. For calendar-year LLCs, that’s April 15. It’s a prepayment for the current year, not a payment for the prior year.5Franchise Tax Board. Limited Liability Company
The Estimated LLC Fee
You must estimate and pay the LLC fee by the 15th day of the 6th month of the current tax year. For calendar-year LLCs, that’s June 15, using Form 3536.6California Franchise Tax Board. Instructions for Form FTB 3536 – Estimated Fee for LLCs It’s a single estimated payment, not quarterly installments. If your tax year ends before the 15th day of the 6th month, no estimated payment is due and the fee is paid with the return instead.
Form 568
Every LLC subject to these rules files Form 568, the Limited Liability Company Return of Income. The due date depends on classification:7Franchise Tax Board. Due Dates: Businesses
- Multi-member LLCs taxed as partnerships: 15th day of the 3rd month after the close of the tax year (March 15 for calendar-year filers).
- Single-member LLCs treated as disregarded entities: 15th day of the 4th month after the close of the tax year (April 15 for calendar-year filers).
The actual fee is reconciled on Form 568. If your real income came in higher or lower than your June estimate, you either owe the difference or receive a credit. Automatic filing extensions are available (seven months for multi-member LLCs, six months for individually owned single-member LLCs), but an extension to file is not an extension to pay. The $800 tax and estimated fee are still due on their original dates.8Franchise Tax Board. Instructions for Form FTB 3537 – Payment for Automatic Extension for LLCs
What Missing a Deadline Costs
Filing late and paying late are separate penalties, and an LLC can owe both simultaneously.
If an LLC treated as a partnership files Form 568 late, the FTB charges $18 per member per month, up to 12 months.9Franchise Tax Board. Common Penalties and Fees A 10-member LLC six months late would owe $1,080 in late-filing penalties alone.
Paying late triggers a 5% penalty on the unpaid amount, plus 0.5% for each additional month it stays outstanding, capped at a combined 25%.10California Legislative Information. California Revenue and Taxation Code 19132 If the FTB finds a substantial underreporting of income, it can add a 20% accuracy-related penalty on the underpayment under rules conforming to IRC Section 6662.11California Legislative Information. California Revenue and Taxation Code 19164 Interest runs from the original due date on any unpaid balance; through mid-2026 the FTB charges 7% on underpayments, adjusted periodically.12Franchise Tax Board. Interest and Estimate Penalty Rates
Ways to Reduce or Avoid the Fee
Electing S-Corporation Status
One common planning move for LLCs approaching the $250,000 threshold is electing to be taxed as an S-corporation. S-corporations owe the $800 minimum franchise tax and a 1.5% income tax, but they are not subject to the tiered LLC fee.5Franchise Tax Board. Limited Liability Company For high-revenue, lower-profit LLCs the math can tilt heavily toward S-corp status. An LLC with $5 million in revenue but $200,000 in taxable income would owe $11,790 as an LLC versus $3,000 under the 1.5% S-corp tax.
To make the election effective for a given tax year, file IRS Form 2553 no more than two months and 15 days after the start of the tax year. For a calendar-year LLC seeking S-corp status in 2026, that’s March 16, 2026. Filing late generally pushes the election to the following year, though the IRS offers late-election relief in limited circumstances. The S-corp structure carries its own trade-offs, including reasonable-compensation rules and shareholder restrictions, so run the numbers with a tax professional before switching.
Don’t Try to Split Into Multiple LLCs
Some owners consider splitting operations across several LLCs to keep each one below $250,000. California anticipated this. Under RTC 17942, the FTB can aggregate the total income of commonly controlled LLCs if it finds the multiple entities were formed primarily to reduce fees. When that happens, the combined income is treated as belonging to a single LLC and all the entities become jointly and severally liable for the fee.1California Legislative Information. California Revenue and Taxation Code 17942 Legitimate business reasons for separate entities generally won’t trigger this treatment, but a structure that exists only to duck the fee should expect consolidation.
Dissolving to Stop the Clock
The $800 annual tax keeps accruing every year the LLC is registered with the Secretary of State, even if the business has no income and has stopped operating.2California Legislative Information. California Revenue and Taxation Code 17941 Filing a “final” return doesn’t end the obligation. The tax remains due until you file a certificate of dissolution or cancellation with the Secretary of State. The LLC fee for the final short year is still calculated on whatever total income the LLC earned during that period, using the same brackets. There is no proration of the flat fee amounts.