California franchise tax: the $800 minimum for startups

The California franchise tax is a charge of at least $800 a year on every corporation that is incorporated in California, registered to do business there, or doing business there, even at a loss. A Delaware startup with an employee or office in California usually owes it, due by April 15 for a calendar-year company, and the first year is exempt only for a corporation that registered with the California Secretary of State.

It sits on top of the Delaware franchise tax, which every Delaware corporation owes wherever it operates. This guide covers who owes California's tax, when a remote employee is enough to trigger it, the $800 minimum and the 8.84% rate, the first-year exemption and its condition, the due dates, a worked example and what happens if you do not pay. The rules come from the Franchise Tax Board's 2025 Form 100 booklet and its guide for new corporations, Publication 1060.

Who owes the California franchise tax

A corporation owes California's minimum franchise tax if it meets any one of three tests: it is incorporated in California, it is qualified or registered to do business there, or it is doing business there. A Delaware C-corp is in the second group once it registers, and in the third group once its California activity crosses the line.

The Form 100 booklet is blunt about the first two groups. A corporation incorporated or registered in California pays the minimum tax "whether the corporation is active, inactive, not doing business, or operates at a loss."

For a Delaware startup, registering means filing a Statement and Designation by Foreign Corporation, with a certificate of good standing from Delaware, with the California Secretary of State. The FTB's corporations page says a foreign corporation becomes subject to the franchise tax once it qualifies. It also says a foreign corporation that does business in California without qualifying is subject to the tax anyway. Not registering changes the paperwork, not the bill.

When a Delaware startup is doing business in California

You are doing business in California if you engage in any transaction there for financial gain, or if your California sales, property or payroll pass a threshold. For 2025 the thresholds are $757,070 of sales, $75,707 of property or $75,707 of payroll, or 25% of your total sales, property or payroll.

Those figures come from the FTB's doing business page, which lists them by year. They are adjusted each year: 2024's were $735,019 of sales and $73,502 of property or payroll. A corporation organized or commercially domiciled in California is doing business there too, so a startup run from a San Francisco office is in from the start.

The payroll test is the one that catches startups. One full-time engineer living in California is usually paid more than $75,707 a year, and if most of your team is there, you also pass the 25% test. Hiring your first California employee is the moment to ask the question.

The doing-business test is separate from sales tax. California generally does not tax SaaS sales, and sales tax nexus has its own thresholds, so a company can owe the franchise tax without collecting any sales tax, or the reverse.

How much is the California franchise tax

A corporation pays the larger of two amounts: 8.84% of its California net income, or the $800 minimum. A startup that loses money pays $800. Measured tax overtakes the minimum only once California net income passes about $9,050, because $9,050 at 8.84% is $800.

Both figures are in the Form 100 booklet. The rate for corporations other than banks and financial corporations is 8.84 percent, and the minimum is $800. The minimum is owed in full even for a short period of less than 12 months, so a company that registers in December pays the same $800 as one that registered in January, once it is past its first year.

California net income is the company's income apportioned to California, not its whole income, so a profitable company with most of its sales elsewhere can still owe close to the minimum. Publication 1060's own example is a first-year corporation with net income of $6,300, which owes $557 ($6,300 at 8.84%).

Is the first year free

A corporation that incorporates in California or registers there through the Secretary of State does not pay the $800 minimum in its first taxable year. It pays only the measured tax, 8.84% of its net income, which is $0 in a loss year. From the second taxable year, the $800 minimum applies.

The condition matters. The Form 100 booklet says the exemption "does not apply to corporations that are not qualified by the California SOS." A Delaware company that is doing business in California without registering owes the $800 for its first year as well.

There is one more exception. A corporation whose taxable year was 15 days or less, and that did no business in California during it, owes no minimum tax for that period. Publication 1060 treats the following year as its first taxable year, so a corporation formed on December 20 keeps its exemption for the next full year.

When is the California franchise tax due

The $800 for a year is due with the first estimated tax payment, by the 15th day of the 4th month of that year: April 15 for a calendar-year company. The year's Form 100 is due by the 15th day of the 4th month after it ends, so each April 15 settles two years.

For a calendar-year startup in 2026:

• April 15, 2026: the first installment of 2026 estimated tax, which cannot be less than the $800 minimum, and the 2025 Form 100 with any balance due for 2025.
• October 15, 2026: the 2025 Form 100 if you did not file in April. California gives an automatic extension to the 15th day of the 11th month with no request, but the extension is to file, not to pay.

The booklet splits estimated tax into installments of 30%, 40%, nothing and 30% of the year's tax, due in the 4th, 6th, 9th and 12th months. A startup whose tax is the $800 minimum pays it all with the first installment. A company that owes measured tax and pays nothing until the return can owe a penalty for underpaying estimated tax.

The federal return has the same April 15 date, and Form 1120's own deadline and extension work on the same pattern, with the federal extension running to October 15 too.

A worked example: one hire, two ways

A Delaware C-corp with a calendar year hires its first California engineer in March 2025 at $160,000 a year, and loses money in 2025, 2026 and 2027. Its California payroll passes the $75,707 threshold in 2025 either way. The only difference is whether it registers with the Secretary of State.

Registering saves the first year's $800. Not registering does not avoid the tax: the company is still doing business in California, it still owes the $800 a year, and it loses the first-year exemption that registering would have given it.

If the unregistered company never files and pays its 2025 tax a year late, on April 15, 2027, the late-payment penalty is 5% of the unpaid tax plus 0.5% for each month it stays unpaid. Twelve months late, that is 11%, or $88 on $800, before interest. It also risks the suspension described below.

What happens if you do not pay

The FTB suspends a business that fails to file returns or pay taxes, penalties, fees or interest. A suspended corporation loses its rights, powers and privileges in California: it cannot legally do business there, bring or defend a lawsuit in a California court, get a refund, or legally close itself down.

The FTB's page on suspended businesses lists those consequences and the fix: file every past-due return, pay every past-due balance, and file an Application for Certificate of Revivor. It also says that registered entities must file and pay at least the $800 from their registration date to the present, "regardless of business activity."

That rule bites startups that wind down without telling California. The minimum tax keeps accruing every year until the company files a certificate of dissolution, withdrawal or surrender with the Secretary of State. A company that stopped operating in 2025 but never withdrew still owes $800 for every year since.

The Secretary of State can also suspend a company that fails to file its Statement of Information, and may charge a $250 penalty, which the FTB collects.

What to do this month

The California franchise tax is a small bill with a large penalty for ignoring it: $800 a year against losing the right to defend yourself in a California court. The work is deciding whether you are in, registering if you are, and putting April 15 on the calendar every year.

1. List where your employees live and where your property is, and compare your California payroll, property and sales with the 2025 thresholds.
2. If you are doing business in California, register with the Secretary of State and keep your first-year exemption.
3. Put April 15 on the calendar for the $800 estimated payment and the prior year's Form 100.
4. File the Statement of Information with the Secretary of State on time.
5. If you shut down or leave California, file the certificate of dissolution or withdrawal, or the $800 keeps coming.
6. Have a CPA check apportionment once you have meaningful revenue in more than one state.

Each of these payments is an expense of the year it covers, recorded when it is owed rather than when it leaves the bank. LedgerIt keeps a startup's books so each year's state taxes land in the right month.