Do I owe California's $800 franchise tax if my foreign-owned LLC is registered in CA but earns no CA income?

California imposes an annual minimum franchise tax of $800 on every LLC that is registered, organized, or doing business in the state. This applies regardless of whether the LLC earns any income in California or anywhere else. It is not an income tax — it is a privilege tax for the right to exist as an LLC in California.

This tax is imposed under California Revenue and Taxation Code Section 17941. The only exemption is for the first taxable year of a newly formed LLC (the first-year exemption), but this does not apply to LLCs that are merely registering as a foreign LLC in California rather than forming there.

Beyond the $800 minimum, California imposes a graduated LLC fee based on total California-source income. If your LLC has California-source gross receipts above $250,000, you owe an additional fee ranging from $900 to $11,790.

For a single-member LLC owned by a nonresident alien, you must file Form 568 (Limited Liability Company Return of Income) annually. Even with zero California income, the $800 minimum tax is reported on this form. The form is due on the 15th day of the 4th month after the close of the LLC's tax year (April 15 for calendar-year filers).

California also requires estimated tax payments. The $800 minimum franchise tax for the following year is due by the 15th day of the 6th month of the current tax year (June 15 for calendar-year filers).

Two California dates, not one: Form 568 on April 15 and the next year's $800 estimate on June 15. If you don't already run that FTB cadence, we partner with doola — they file the 568 and the June estimate so a zero-income year still stays current with the Franchise Tax Board.

California uses market-based sourcing rules under R&TC Section 25136. For services, income is sourced to California if the benefit of the service is received in California. For sales of tangible goods, income is sourced where the goods are delivered.

If you are a non-resident alien with no California clients and no goods delivered to California, your California-source income is likely zero. However, you still owe the $800 minimum franchise tax simply because your LLC is registered in the state.

Be aware that California's Franchise Tax Board is known for aggressive enforcement. They may argue that an LLC has California-source income based on factors like having a California registered agent, California bank account, or California-based service providers.

Many foreign LLC owners choose to dissolve their California LLC and re-form in a state with no income tax and lower annual fees, such as Wyoming or Delaware. This is a legitimate tax planning strategy.

However, the process requires careful execution:

1. File the final Form 568 with the FTB and pay any outstanding franchise tax 2. File Form LLC-4/7 (Certificate of Cancellation) with the California Secretary of State 3. Pay all outstanding fees (the $800 tax is prorated for the final year in some cases, but you generally owe it for any year you were registered) 4. Form a new LLC in your chosen state 5. Update your EIN records with the IRS using Form 8822-B

Note: If you continue to have any California connection (clients, property, employees), California may still assert that your out-of-state LLC is "doing business" in California and require franchise tax payment.

The FTB imposes penalties and interest on unpaid franchise tax. The penalty for late payment is 5% of the unpaid tax, plus 0.5% per month (up to 25%). Interest accrues on the unpaid balance at a rate that changes annually.

Additionally, if you fail to file Form 568 for multiple years, the FTB can suspend or forfeit your LLC. A suspended LLC cannot legally conduct business in California, file lawsuits, or defend against lawsuits in California courts. Reviving a suspended LLC requires paying all back taxes, penalties, and interest, plus a $250 revival fee.

The FTB can also place liens on assets and levy bank accounts to collect unpaid franchise tax.

Under SB 263 (effective January 1, 2021), LLCs formed in California are exempt from the $800 minimum franchise tax for their first taxable year. However, this exemption has specific limitations:

- It applies only to the first taxable year, not subsequent years - It applies to LLCs organized in California, not necessarily to foreign LLCs registering in California - The exemption was initially temporary but has been extended

Check the FTB website for the most current status of this exemption, as legislative changes can affect availability.