Introduction
If you're searching for a California LLC first-year tax waiver, here's the direct answer: that exemption was temporary, and it expired for LLCs organized or registered on or after January 1, 2024. Whether your business qualifies depends entirely on your formation or registration date.
Many business owners assume their first year of operation automatically means no tax, especially if the LLC hasn't earned a dollar. That's a costly misconception. California's $800 minimum franchise tax applies regardless of income, profit, or activity level in most cases.
This article breaks down the former AB 85 exemption, what applies to LLCs formed today, the separate income-based LLC fee, filing deadlines, and the narrow exceptions that still exist.
Key Takeaways
- AB 85’s first-year exemption only covered LLCs formed or registered between 2021 and 2023
- $800 annual franchise tax sits separate from the income-based LLC fee and Secretary of State filing fees
- Zero revenue or inactivity does not cancel the minimum tax obligation
- Verify current rules with the Franchise Tax Board (FTB) and Secretary of State before assuming any exemption applies
Is the California LLC First-Year Franchise Tax Exemption Still Available?
Short answer: not for most new LLCs. The "exemption" people refer to never eliminated every California tax obligation. It only waived the $800 minimum annual tax for a qualifying LLC's first taxable year, while other requirements like Form 568 filing remained in place.
Where AB 85 Came From
Assembly Bill 85, signed into law in mid-2020, amended California Revenue and Taxation Code section 17941 to exempt qualifying LLCs from the $800 tax for their first taxable year. The relief applied to LLCs that organized or registered with the Secretary of State on or after January 1, 2021, and before January 1, 2024, according to AB 85's text.
That's a three-year window. Outside it, the exemption simply doesn't apply.
What Applies to LLCs Formed Today
For LLCs organized or registered on or after January 1, 2024, the Franchise Tax Board (FTB) confirms the first-year exception no longer applies, per FTB's 2024 update. For the 2026 taxable year, the annual LLC tax sits at $800, due in the first taxable year unless another exception applies.
A separate law reduces the first-year annual tax to $400 for taxable years beginning in 2027 through 2029. That's a reduction, not a waiver, and it only covers specific first taxable years under that window.
Quick comparison:
| Formation/Registration Period | First-Year Tax |
|---|---|
| Jan 1, 2021 – Dec 31, 2023 | $0 (AB 85 exemption) |
| Jan 1, 2024 – Dec 31, 2026 | $800 |
| Jan 1, 2027 – Dec 31, 2029 | $400 |
Formation or registration date matters more than when you "started business." An LLC approved by the Secretary of State in late December can have a first taxable year that spans just days, which affects timing.
Even where the $800 tax does not apply, Form 568 filing, income reporting, and the income-based LLC fee can still be required.
Who Qualifies for a California LLC Franchise Tax Exemption or Exception?
Qualification isn't a single checkbox. It depends on entity type, formation history, business activity, and taxable-year length.
Domestic vs. Foreign vs. "Doing Business"
California treats three categories differently:
- California-organized LLCs – first taxable year begins when Articles of Organization are filed
- Foreign LLCs registered in California – first taxable year begins when the entity was organized in its home jurisdiction
- LLCs merely "doing business" in California – covers financial-gain transactions, commercial domicile in the state, or sales, property, or payroll above California thresholds
Each category can trigger different filing obligations, so don't assume a foreign LLC escapes California tax just because it was formed elsewhere.
The 15-Day Rule
There's a narrow exception: an LLC isn't subject to the annual tax or required to file a return if its taxable year is 15 days or less and it conducted no business in California during that period. This mostly helps entities formed at the very end of a calendar year.
Qualification Checklist
Before assuming you qualify for any exception, confirm:
- Exact formation or registration date (verify with Secretary of State (SOS) records)
- Entity type (domestic LLC, foreign LLC, LLP, limited partnership)
- Whether the business was active in California during the relevant period
- Taxable-year length
- Federal and California tax classification
- California-source income level
- Formal cancellation status, if applicable
- Any notices already received from the Franchise Tax Board (FTB)
Be cautious about dissolving or reorganizing purely to dodge a tax bill. That move can create its own legal, reporting, and administrative headaches, and a tax professional should weigh in before you act.
What California LLC Taxes, Forms, and Deadlines Still Apply?
Three separate obligations commonly get lumped together. They're not the same thing, and missing one doesn't excuse missing another.
The three categories:
- $800 annual minimum tax – paid via Form 3522, administered by the FTB
- Income-based LLC fee – triggered by total California income, not net profit
- Annual income reporting – filed via Form 568
The Income-Based Fee Tiers
This fee kicks in once total California income crosses $250,000, regardless of whether the LLC actually turned a profit. Current tiers:
| Total California Income | LLC Fee |
|---|---|
| $250,000 – $499,999 | $900 |
| $500,000 – $999,999 | $2,500 |
| $1,000,000 – $4,999,999 | $6,000 |
| $5,000,000 or more | $11,790 |
Forms and Deadlines
- Form 568 – annual return of income; due the 15th day of the third or fourth month after year-end, depending on LLC classification
- Form 3522 – annual tax payment voucher; due the 15th day of the fourth month after the taxable year begins
- Form 3536 – estimated fee payment; due the 15th day of the sixth month for LLCs expecting income over $250,000
A filing extension on Form 568 does not extend the deadline to pay tax already owed. Missed payments trigger penalties, interest, and potential entity-status problems with the state.
Tracking multiple deadlines across different forms is exactly where businesses lose track, especially founders managing a US entity remotely.
VJM Global supports businesses that need help monitoring California LLC tax obligations, organising supporting records, and coordinating recurring filings, without replacing the role of California legal counsel.
Does No Income, Inactivity, or Dissolution Remove the California LLC Tax?
No. This is the single biggest misunderstanding business owners carry into their first tax year.
No revenue, no profit, an operating loss, or simply going quiet doesn't by itself eliminate the $800 minimum tax. The FTB applies the tax to an LLC's existence and status, not its bank balance.
Inactive Isn't the Same as Cancelled
Closing a business bank account or walking away from an LLC doesn't stop the clock. The annual tax continues accruing for each taxable year, or part of one, until a proper certificate of cancellation is filed with the Secretary of State.
Scenario Comparison
- New California LLC formed after 2023 – owes $800 in its first taxable year, no AB 85 relief
- LLC formed during 2021–2023 – received the first-year exemption, now subject to normal annual tax
- Inactive LLC never formally cancelled – continues accruing tax and filing obligations year after year
- Out-of-state LLC doing business in California – may owe California tax and face registration requirements despite being formed elsewhere
Closing an LLC Properly
Winding down requires more than stopping operations. Generally, you need to:
- File a final Form 568 and mark it as final
- Pay any outstanding annual tax, fee, penalties, or interest
- File the appropriate Secretary of State cancellation form (typically Form LLC-4/7, sometimes paired with LLC-3) within 12 months of the final return
Skip these steps and the tax keeps accruing, notice after notice.
Practical California LLC Compliance Checklist
Use this before assuming any exemption applies:
- Confirm your exact formation or registration date through Secretary of State records, not a date you remember
- Build a tax calendar covering the annual minimum tax, estimated LLC fee (if applicable), Form 568, Statement of Information, and any local or industry permits
- Keep records of payments, filed forms, entity status, income calculations, and any professional advice received
- Ignore outdated blog posts and informal advice when deciding whether an exemption applies
"First year" does not mean the first year you made money. It means your first taxable year under California law.
VJM Global's US entity formation support covers popular states including California, pairing initial setup with ongoing tax and accounting compliance so these deadlines don't slip through the cracks.
Conclusion
Whether a first-year California LLC franchise tax exemption applies to you comes down to one thing: your formation or registration date against the applicable statute. LLCs formed after the AB 85 window generally owe the $800 tax from day one.
Neither a lack of income nor inactivity erases that obligation. The annual tax, income-based fee, and filing requirements each need separate analysis.
Before you file, ignore a notice, or assume an exception applies, verify your LLC's status with the FTB and Secretary of State. VJM Global can provide tailored accounting support to confirm your actual position.
Frequently Asked Questions
Is the $800 California LLC fee waived for the first year?
Only for LLCs that were organized or registered between January 1, 2021, and December 31, 2023, under the AB 85 exemption. LLCs formed after that window generally owe the $800 tax in their first taxable year.
If my California LLC makes no money the first year, do I still have to pay the $800 fee?
Generally, yes. Having no income or profit does not eliminate the minimum annual tax on its own. A few narrow statutory exceptions exist, such as the 15-day rule, but they're limited and specific.
Do California LLCs have to pay franchise tax?
Most do, paying the $800 minimum annual tax plus a separate income-based LLC fee if California income exceeds $250,000. Whether it applies depends on entity type, California business activity, and tax classification.
What are the requirements to qualify for a California LLC franchise tax exemption?
Historically, qualification depended on forming or registering between 2021 and 2023 under AB 85. Today, check current statutory exceptions, your formation date, taxable-year length, entity type, and actual California business activity before assuming relief applies.
