If you run a business in San Diego or anywhere in California, you’ve probably heard about the $800 minimum franchise tax — a yearly fee that many business owners grumble about. But who actually needs to pay it? And are there exceptions worth knowing? Here’s a clear, up-to-date look at what the law says in 2026 and beyond.
What Is the $800 Franchise Tax?
The California Franchise Tax Board (FTB) requires certain business entities to pay a minimum annual tax of $800 simply for being registered or doing business in the state. It is not based on income — meaning you can owe it even if your business loses money or earns nothing at all.
Which Business Entities Must Pay It?
Here’s how it breaks down:
LLCs (Limited Liability Companies)
If your business is an LLC organized in California or registered as a foreign LLC doing business here, you must pay the $800 annual franchise tax every year, regardless of revenue or activity.
Until recently, some new LLCs formed from 2021–2023 qualified for a first-year exemption under California Assembly Bill 85 — but that temporary break has expired for most entities formed in 2024 and later, meaning the $800 tax applies right away.
Corporations (C-Corps & S-Corps)
Most corporations (C or S) incorporated or doing business in California must pay the $800 minimum franchise tax every year.
There is currently a limited first-year exemption for new corporations (so long as they meet qualifications and especially if they do no business or have a very short tax year), but it’s not automatic for all new businesses.
- S-Corps: In addition to the $800 minimum, S corporations pay 1.5% of net income — whichever is higher.
LPs & LLPs
Limited partnerships and limited liability partnerships typically owe the $800 annual tax as well, since they’re considered registered business entities in California.
Sole Proprietorships & General Partnerships
Sole proprietors and general partnerships do not owe the $800 franchise tax because they are not registered with the California Secretary of State as LLCs or corporations.
Do You Owe It Even If Your Business Is Inactive or Not Making Money?
Yes. For most LLCs and corporations, the $800 tax is due every year — even if:
- You have no income
- You haven’t started operations yet
- Your business is dormant
This obligation continues until you properly dissolve the entity with the state.
Are There Any Exemptions or Ways to Avoid It?
There are a few narrow exceptions, but they typically don’t apply to most small San Diego businesses:
First-Year Exemption (Limited)
- Corporations may be exempt from the first year’s minimum tax in certain situations (e.g., short taxable year or no business activity).
- Temporary LLC first-year exemptions (like AB 85) have mostly expired for entities formed after 2023.
Not Doing Business in California
If your business is registered elsewhere and truly does no business in California, you may avoid this tax — but “doing business” includes sales, services, property, employees, or even revenue sourced from California.
Dissolving the Business
Properly dissolving your LLC or corporation with the Secretary of State and FTB will stop future $800 tax obligations.
Why It Matters for San Diego Businesses
San Diego is home to thousands of startups, small businesses, and side hustles. Many owners assume they’ll only pay taxes if they make money — but with California’s franchise tax, that’s not the case. Even businesses that are early-stage or pre-revenue can have $800 added to their annual costs just for being registered in the state.
Understanding this obligation early helps you:
- Budget for startup costs
- Choose the right entity type (e.g., sole proprietorship vs. LLC)
- Avoid late penalties and potential suspension of business status
Final Takeaway
Yes — most San Diego businesses that are registered as LLCs, corporations, LPs, or LLPs owe the $800 annual California franchise tax. It applies whether you’re earning revenue or not and generally begins as soon as your entity is recognized by the state (with limited first-year exemptions only for some corporations).
If you’re unsure how this applies to your specific situation, it’s wise to consult with a CPA or tax professional familiar with California state tax law.