California’s LLC Gross Receipts Fee

Owners call it the gross receipts tax. The statute calls it a fee, and the Franchise Tax Board collects it with the LLC’s return. Whatever the name, it surprises owners the first year revenue crosses $250,000, because it has nothing to do with whether the LLC made money. This page goes past the fee table on my California LLC annual requirements page: what counts as income, how out-of-state sales are treated, the cliff at each tier, the estimate penalty, and when an S election takes an LLC out of the fee altogether. The $800 annual tax itself is covered on my $800 LLC tax page.

What is the California LLC gross receipts fee?

It’s an annual fee every LLC subject to the $800 tax pays once its California total income reaches $250,000. The fee is “in addition to the tax imposed under Section 17941” (Rev. & Tax. Code § 17942(a)), so an LLC that owes it pays both.

Total income from California sources	LLC fee	Plus the annual tax
Under $250,000	$0	$800
$250,000 to $499,999	$900	$800
$500,000 to $999,999	$2,500	$800
$1,000,000 to $4,999,999	$6,000	$800
$5,000,000 or more	$11,790	$800

Those are the four tiers in Rev. & Tax. Code § 17942(a)(1) to (a)(4), and they match the Franchise Tax Board’s LLC page and the table on my business law attorney page. The FTB rounds total California income to the nearest whole dollar before applying them. The statute states them as fixed dollar amounts with no inflation adjustment.

What counts as “total income” for the LLC fee?

Gross income plus cost of goods sold. That’s the statute’s definition of “total income from all sources derived from or attributable to this state” (Rev. & Tax. Code § 17942(b)(1)(A)).

Gross income, for this purpose, follows the federal definition of gross income (Rev. & Tax. Code § 24271(a)). For a business that sells goods, gross income is sales minus cost of goods sold. Adding cost of goods sold back puts the number close to total sales. That’s why people call it a gross receipts fee.

What this means in practice:

• Payroll, rent, and other operating expenses don’t reduce it. They’re deductions from gross income, not part of the calculation.
• A loss year doesn’t help. An LLC with $600,000 of sales and a $40,000 loss still has $600,000 of total income.
• Interest, rents, and other income count. Federal gross income includes them, so a rental LLC measures its fee against gross rents.

A worked example: the Oxnard coffee roaster

A single-member LLC in Oxnard roasts and sells coffee. In 2026 it has $620,000 of sales, all to California customers, $410,000 of cost of goods sold, and $172,000 of other expenses.

• Gross income: $620,000 minus $410,000, or $210,000.
• Total income for the fee: $210,000 plus $410,000, or $620,000.
• Net profit: $38,000.
• LLC fee: $2,500, because $620,000 falls in the $500,000 to $999,999 tier.
• Total state charges before income tax: $2,500 plus the $800 annual tax, or $3,300.

On $38,000 of profit, that $3,300 is real money. It’s the reason I tell owners to put the fee in the budget the year revenue starts climbing, not the year the notice arrives.

Does the fee apply to sales outside California?

No. The fee counts only income “derived from or attributable to this state,” and that’s measured using the same rules the FTB uses to assign sales for apportionment, in Rev. & Tax. Code §§ 25135 and 25136 (Rev. & Tax. Code § 17942(b)(1)(B)). The statute applies those rules without the provisions that would drop receipts out of the sales factor.

For services, sales are in California to the extent the customer receives the benefit of the service here (Rev. & Tax. Code § 25136(a)(1)). Rent from real property is in California if the property is here (Rev. & Tax. Code § 25136(a)(3)).

A worked example: the Ventura software consultant

A two-member LLC in Ventura does software consulting. It bills $900,000 in 2026. Clients in Texas and New York, who receive the benefit of the work there, account for $600,000. California clients account for $300,000.

Under the benefit-of-the-service rule, only the $300,000 is California total income. The fee is $900, not the $2,500 the full $900,000 would suggest. The LLC’s CPA has to document where each client received the benefit, and a client with offices in several states can complicate the split. Sales of goods follow their own rules in § 25135, and a product business that ships out of state should have its CPA work through them before assuming anything.

Where are the cliffs?

At every tier line. The fee is flat within each tier, so one extra dollar of income at a line raises the fee by the whole difference.

Total California income	Fee	Jump at the line
$249,999 vs. $250,000	$0 vs. $900	$900
$499,999 vs. $500,000	$900 vs. $2,500	$1,600
$999,999 vs. $1,000,000	$2,500 vs. $6,000	$3,500
$4,999,999 vs. $5,000,000	$6,000 vs. $11,790	$5,790

Owners near a line sometimes ask whether to split the business into two LLCs, each under the line. The statute closes that door, as the next section explains.

Can I split my business into several LLCs to lower the fee?

Not safely. If the FTB determines that multiple LLCs were formed primarily to reduce the fee, it can treat the total income of all the commonly controlled LLCs as the income of one of them (Rev. & Tax. Code § 17942(b)(2)). Each LLC in the group is then jointly and severally liable for the fee.

“Commonly controlled” means the same persons own, directly or indirectly, more than 50 percent of the capital or profits interests (Rev. & Tax. Code § 17942(b)(2)). Separate LLCs for real reasons, such as isolating a rental property from an operating business, are a different matter. The key word in the statute is “primary purpose.” My page on holding company LLCs in California covers structures that hold up.

Tiered LLCs don’t pay twice

When one LLC owns an interest in another, income the lower LLC already counted toward its own fee isn’t counted again at the upper level. The statute excludes allocations and distributions an LLC receives as a member of another LLC to the extent they’re attributable to income already subject to the fee (Rev. & Tax. Code § 17942(b)(1)(A)).

When is the LLC fee due?

You estimate it and pay by the 15th day of the 6th month of the tax year (Rev. & Tax. Code § 17942(d)(1)). For a calendar-year LLC that’s June 15. The FTB’s form for the payment is FTB 3536. The fee is then reconciled on the LLC’s return, and the balance is due when the return is due (Rev. & Tax. Code § 17942(c)).

The underpayment penalty

The estimate is the hard part, because in June you’re guessing at a full year’s income. If you pay less than the actual fee by the June date, the FTB adds a penalty of 10 percent of the underpayment (Rev. & Tax. Code § 17942(d)(2)). The FTB’s penalty page describes the same rule.

The safe harbor

No penalty applies if what you paid by the June date equals or exceeds the LLC’s total fee for the preceding taxable year (Rev. & Tax. Code § 17942(d)(2)). If last year’s fee was $900, paying $900 by June 15 protects you from the penalty even if this year lands in the $2,500 tier. You still owe the full $2,500 with the return.

The safe harbor doesn’t help in the first year the fee applies, because the prior-year fee was zero. That’s the year to estimate conservatively.

A worked example: the estimate

A Thousand Oaks irrigation-supply LLC had $470,000 of California total income in 2025 and paid a $900 fee. By June 2026 it’s on pace for $540,000. Two ways to handle the June 15 estimate:

• Pay $900, relying on the safe harbor. If the year ends at $540,000, the LLC owes the remaining $1,600 with its return and no underpayment penalty.
• Pay $2,500 now. Same total, paid earlier, and no reliance on last year’s number.

Either works. What doesn’t work is paying nothing because the owner forgot the fee exists, which in a first-fee year produces a 10% penalty on the whole amount.

Does a single-member LLC pay the gross receipts fee?

Yes. The fee applies to every LLC subject to the $800 tax under § 17941 (Rev. & Tax. Code § 17942(a)). That includes a single-member LLC that’s disregarded for income tax. The FTB’s LLC page states the fee rule for LLCs without an exception for single-member companies.

An out-of-state LLC doing business in California, or registered here, is in the same position for its California-source income. The $800 tax page explains when a Wyoming or Nevada LLC is doing business here.

Does an LLC taxed as an S corporation pay the LLC fee?

No, because it isn’t an “LLC” for this tax. The $800 annual tax applies to an LLC “that is not taxable as a corporation for California tax purposes” (Rev. & Tax. Code § 17941(d)). The fee follows the tax, because only an LLC subject to the $800 tax owes it (Rev. & Tax. Code § 17942(a)). An LLC that elects to be taxed as a corporation, including one that then elects S status, moves into the corporate tax system.

That trade isn’t free. An S corporation pays California tax at 1.5 percent of its net income (Rev. & Tax. Code § 23802(b)(1)), subject to the $800 minimum franchise tax (Rev. & Tax. Code § 23802(c)).

A worked comparison

Take a Camarillo LLC with $1.2 million of California sales and $180,000 of net income.

	Taxed as an LLC (partnership or disregarded)	Taxed as an S corporation
Annual tax or minimum franchise tax	$800	Replaced by the 1.5% tax, with an $800 minimum
LLC fee	$6,000	None
Entity-level tax on $180,000 net income	None	$2,700
Total entity-level California charge	$6,800	$2,700

On those numbers, the S corporation pays less at the entity level. That’s one line in a larger decision. An S election brings payroll for the owners, reasonable salary rules, a separate federal return, and different treatment on a sale. The federal side, and the owner’s own income tax, often matter more than the $4,100 difference in this table. Run it with your CPA. My pages on LLC vs. S corp in California and single-member LLC vs. S corp cover the legal side of that choice.

What should I ask my CPA about the LLC fee?

I’m not a CPA and don’t prepare returns. Bring these questions to yours:

1. What’s our California total income on the statute’s definition, gross income plus cost of goods sold?
2. How much of our revenue is sourced outside California under §§ 25135 and 25136?
3. Which tier will we land in this year, and how close are we to the next line?
4. What should we pay by June 15, and are we relying on the prior-year safe harbor?
5. Would an S election reduce our total California and federal cost, after payroll?
6. If we own more than one LLC, could the FTB treat them as commonly controlled?

What happens if the LLC doesn’t pay the fee?

Penalties and interest first, then possible suspension. The fee is collected the same way as the state’s income taxes and is subject to interest and applicable penalties (Rev. & Tax. Code § 17942(c)). For suspension and revivor, “tax” includes both the annual tax and the LLC fee (Rev. & Tax. Code § 23305.5(b)(2)), so an unpaid fee can lead to an FTB suspension the same way an unpaid $800 can. My page on suspended LLCs and corporations covers what that does to your contracts.

Frequently asked questions

How much is the California LLC gross receipts fee?

$900, $2,500, $6,000, or $11,790, depending on the LLC’s California total income, with no fee under $250,000 (Rev. & Tax. Code § 17942(a)). The fee is in addition to the $800 annual tax.

Is the LLC fee based on gross receipts or net income?

Gross, in effect. The statute measures gross income plus cost of goods sold (Rev. & Tax. Code § 17942(b)(1)(A)). Operating expenses and losses don’t reduce it.

When is the California LLC fee due?

The estimate is due by the 15th day of the 6th month of the tax year, June 15 for a calendar-year LLC, on FTB 3536 (Rev. & Tax. Code § 17942(d)(1)). Any balance is due with the return.

What is the penalty for underpaying the LLC fee estimate?

10 percent of the underpayment (Rev. & Tax. Code § 17942(d)(2)). There’s no penalty if the June payment was at least the prior year’s total fee.

Do I pay the LLC fee if my LLC lost money?

Yes, if California total income was $250,000 or more. The fee ignores profit. A loss year only helps if revenue also fell below a tier line.

Do out-of-state sales count toward the LLC fee?

No. Only income assigned to California under the sales-sourcing rules of §§ 25135 and 25136 counts (Rev. & Tax. Code § 17942(b)(1)(B)). Services count where the customer receives the benefit (Rev. & Tax. Code § 25136(a)(1)).

Does an S corporation pay the California LLC fee?

No. An LLC taxed as a corporation isn’t an LLC for purposes of the $800 annual tax (Rev. & Tax. Code § 17941(d)), and the fee applies only to LLCs that owe that tax. It pays the 1.5 percent S corporation tax instead, with an $800 minimum (Rev. & Tax. Code § 23802).