The Hedge | Brutal Honesty Over Hype Since 2008
Eight hundred dollars doesn’t sound like much. In the context of starting a business, it sounds almost trivial. But California’s $800 minimum franchise tax is the highest minimum franchise fee in the nation, applies regardless of revenue, and signals unmistakably that California’s business formation environment is built for established companies — not entrepreneurs trying to get off the ground.
The Basic Structure
The California Franchise Tax Board imposes a minimum franchise tax of $800 on every corporation, LLC, limited partnership, and limited liability partnership doing business in California or organized under California law. The $800 is a floor — actual tax owed is the greater of $800 or the applicable percentage of net income. For LLCs with gross receipts above $250,000, there are additional fees on top: $900 for receipts between $250,000 and $499,999, scaling to $11,790 for receipts over $5 million.
The minimum $800 applies whether the company is active or inactive, has revenue or not, is profitable or losing money. A company formed to hold a single piece of IP that never generates revenue owes $800 per year. A company sitting dormant while the founder pivots owes $800 per year. Failure to pay results in suspension — loss of legal capacity to contract, sue, or be sued. Reinstatement requires paying all back taxes, penalties, and interest plus filing a certificate of revivor.
How California Compares
Most states impose no minimum franchise tax at all. Texas: No franchise tax below $1.18 million in revenue, then 0.375–0.75% of taxable margin — no $800 floor. Wyoming: $60 annual report minimum, no corporate income tax, no franchise tax. Delaware: $175 for LLCs annually. Minnesota: LLC formation $155, then free annual renewals, zero minimum franchise tax. A Minnesota LLC with zero revenue owes zero dollars annually. A California LLC with zero revenue owes $800. Over five years of a struggling startup: $3,915 California premium over Minnesota — and Minnesota is not a low-tax state.
The “Incorporate Elsewhere” Strategy — And Why It Often Fails
Many founders try to solve this by forming in Wyoming, Nevada, or Delaware while operating in California. The problem: if your employees work in California, your customers are there, your offices are there — the Franchise Tax Board considers you to be “doing business in California” regardless of incorporation state. You owe the $800 minimum plus registration as a foreign entity. You pay out-of-state formation costs AND California franchise tax. The arbitrage dissolves for businesses with genuine California operations.
What This Tells You About the System
The $800 minimum franchise tax isn’t a design flaw. It’s a design feature — of a tax system calibrated to extract revenue from businesses regardless of ability to pay. States that want to attract startups waive or minimize fees during early years when companies are most fragile. California imposes the highest minimum in the country before you’ve earned your first dollar. That is signal, not noise. Listen to it.
The Hedge has been cutting through financial and business noise since 2008. Brutal honesty over hype — always.
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