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Editorial 8 MIN READ

California's fee schedule for LLCs, October 2020: what moved and what did not

A $70 filing fee, an $800 franchise tax still in force, and a new first-year waiver that begins in January

The Editors
Staff, Incorporator.org
8 min read Updated
Contents 6 sections
  1. The filing mechanics
  2. The $800 still applies in the year of formation
  3. AB 85, plainly read
  4. Where people trip
  5. Who California makes sense for, and who should still form elsewhere
  6. Sources

alifornia's 2020 LLC fee schedule holds almost every number from last year: $70 to file the Articles of Organization, $20 for the Statement of Information, and an $800 minimum franchise tax that continues to apply in the year of formation. The single meaningful change sits in the calendar rather than the price list. AB 85, signed in June, waives the $800 tax for LLCs that form on or after January 1, 2021.

If you are forming in October, November, or December of 2020, none of that helps you. The waiver is forward-dated. It is worth understanding exactly what the statute does before you decide whether to file this quarter or wait six weeks.

The filing mechanics

Formation in California starts with Form LLC-1, the Articles of Organization. The fee is $70, paid to the Secretary of State, and the form asks for the LLC's name, its business address, its agent for service of process (an individual California resident or a registered 1505 corporate agent), and whether it is member-managed or manager-managed. You can file online through bizfileOnline, by mail, or in person in Sacramento. The SOS fee schedule as of October 2020 continues to list the $70 figure and waives the separate $15 counter drop-off charge that existed in earlier years; online filings do not incur it.

Processing time on the routine queue runs roughly a week to two weeks for paper filings and is usually faster online. Expedited service is available at $350 for 24-hour turnaround and $750 for same-day, filed in person in Sacramento with a preclearance request. Most founders do not need expedited; if a deal depends on the entity existing today, they know who they are.

Within 90 days of formation the LLC must file Form LLC-12, the Statement of Information, with a $20 filing fee. The SI repeats every two years after that on the same $20 cadence. The late penalty for a missed Statement of Information is $250, assessed by the Franchise Tax Board on referral from the SOS, and it is one of the more common avoidable expenses a first-year California LLC incurs.

Those four dollar figures, $70, $20, $250, and the $800 below, are the spine of the California fee schedule. Everything else is either optional (expedite fees, name reservation at $10) or triggered by income (the gross-receipts fee).

The $800 still applies in the year of formation

R&TC § 17941 imposes an $800 annual minimum franchise tax on every LLC that does business in California or is organized under its laws, and the tax is owed in the year of formation. A new LLC formed today pays $800 by the 15th day of the fourth month after it was formed. An LLC formed October 27 owes the tax by February 15, 2021. An LLC formed December 15 owes it by April 15, 2021. The SOS and the FTB treat this as non-negotiable, and the FTB's collection letters are the single most common surprise California LLC invoice.

For a fuller walk-through of the floor and its mechanics, see our December 2019 piece on the $800 California franchise tax floor for new LLCs. Nothing in that analysis has been superseded for 2020 filings. The 15-day rule remains the only statutory escape hatch inside the year of formation: an LLC organized in the last 15 days of a taxable year, which for calendar-year entities means December 17 through December 31, that conducts no business in those 15 days, is not treated as doing business in that short year and owes no $800 for it. The 15-day rule is narrow and is routinely misread to mean "any December formation is free." It is not. Form late enough, and only late enough, and do nothing with the entity.

Beyond the $800 floor, the LLC fee under R&TC § 17942 attaches when total California-sourced income exceeds $250,000 in the taxable year. The brackets for 2020 remain those set by statute: $900 at $250,000 to $499,999 of total income, $2,500 at $500,000 to $999,999, $6,000 at $1,000,000 to $4,999,999, and $11,790 at $5,000,000 and above. These tiers have not moved for 2020. The fee is paid on Form 3536 by June 15 of the taxable year (an estimated-fee prepayment) and reconciled on Form 568 with the annual return.

AB 85, plainly read

Assembly Bill 85, signed by the governor on June 29, 2020, is the only 2020 statutory change a California LLC founder needs to track. The relevant provision amends R&TC § 17935, § 17941, and § 17948 to create a first-year waiver of the $800 minimum franchise tax for LLCs, limited partnerships, and limited liability partnerships that register or organize in California in taxable years beginning on or after January 1, 2021, and before January 1, 2024.

That window is three taxable years: 2021, 2022, and 2023. The waiver sunsets automatically at the end of 2023 unless the Legislature extends it. The Senate analysis frames the policy as a bridge for small-business formation during the post-pandemic recovery, and the Department of Finance scored the first-year revenue loss in the low nine figures.

Two things the bill does not do are worth underlining. First, it does not refund or credit the $800 paid by LLCs that formed in 2020. An LLC organized on October 27, 2020 pays its full first-year $800 on the original schedule and receives nothing back. The effective-date language is prospective, and the FTB has issued no early-access guidance. Second, it does not waive the $800 in years two, three, or four of an LLC's life. The waiver is a first-year-only benefit for entities that form inside the window. Year two onward is still $800.

The narrow practical question this raises for fourth-quarter 2020 filers is whether to wait until January 1 to form. For an operational business that needs to transact now, the answer is almost always no. Six weeks of delayed revenue, contract risk, and banking setup cost more than $800. For a shell entity created for a future project, with no imminent operations and no investor pressure, waiting until early January saves $800 cleanly. The 15-day rule covers December 17 through December 31 formations that conduct no business, so an entity formed then and truly inactive would owe no 2020 tax and, if not dissolved, would owe $800 in 2021 (falling outside the waiver because its first taxable year was 2020's short year). The cleanest waiver-eligible path for an inactive shell is formation on or after January 1, 2021.

Where people trip

The Statement of Information deadline is the most-missed filing in California. The 90-day clock starts on the date the SOS stamps the Articles as filed, not the date the founder mailed them. The SOS sends a reminder postcard to the address on the filing, which is frequently a mail-forwarding service that does not reliably forward postcards. The $250 penalty attaches automatically on referral to the FTB. An LLC that misses the initial SI and then misses the $800 first-year tax has a $1,050 delinquency before it has earned its first dollar.

The second trap is the assumption that a California LLC doing no business in California can avoid the $800 by citing inactivity. The franchise tax attaches on the basis of organization under California law or doing business in California, and organization alone is enough. The FTB's Publication 3556 and its online LLC guidance have been consistent on this since 2016: registration creates the liability, full stop. The only way an organized California LLC avoids the $800 for a year is the 15-day rule (and, starting in 2021, the AB 85 first-year waiver).

The third trap is the gross-receipts fee, not because the math is hard but because Form 3536's estimated-payment deadline is June 15. An LLC that crosses $250,000 of California income mid-year owes $900 on the June 15 estimate, not on the April 15 return. Underpayment penalties attach from June 15.

Our August 2016 guide to California LLC formation walked through the same structure at more leisure and is still an accurate primer on the mechanics. The numbers in this piece update it to 2020.

Who California makes sense for, and who should still form elsewhere

The California fee stack is the highest imposed by any U.S. state on a standing LLC: $800 every year, minimum, plus graduated fees on income over $250,000, plus the $70 entry and $20 biennial SI. Nothing about AB 85 alters that structural picture. The waiver is a one-year on-ramp, not a policy shift.

The case for forming a California LLC was never cost. It was that California is the operating state. If the LLC will have employees in California, hold California real property, contract with California customers in a way that creates taxable nexus, or be managed from a California address, it is going to owe the $800 whether it organizes here or registers here as a foreign entity. Foreign-qualifying a Delaware or Wyoming LLC into California produces two sets of fees and no savings: the out-of-state formation cost, plus $70 for the LLC-5 application to register as a foreign LLC, plus the $800 FTB minimum, plus the same $20 SI and the same gross-receipts fee on California income. The "avoid California by forming elsewhere" move is, in the ordinary case, a confusion about which state's fees the tax follows. The FTB's posture here has been consistent through 2020.

The case against forming a California LLC is the reverse. If the business will be operated from another state, holds no California assets, has no California customers beyond a trivial volume, and has no need for a California nexus, forming somewhere else and paying that state's fees is the cheaper path. For a sole proprietor consultant in Nevada serving national clients, California is irrelevant; for a San Francisco founder building anything local, California is unavoidable and AB 85 is a polite tailwind next year.

The practical move for a reader in the final quarter of 2020 is narrow and unromantic. If the business needs to exist now, file now, pay the $800 on the February or April deadline, and price it into the first-year budget. If the business does not need to exist until January, file on January 2 and claim the waiver. If the business already exists, do not expect relief: there is none for 2020 filers.

Sources

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