Delaware LLC vs California LLC: You Still Pay California's $800 Tax and the Fee on California Income
Delaware LLC vs California LLC: You Still Pay California's $800 Tax and the Fee on California Income
Many founders who run a business in California assume that forming an LLC in Delaware lowers their state tax bill. It does not. Forming in Delaware does not remove California's taxes. An LLC organized in Delaware that registers or does business in California owes the same $800 annual franchise tax and the same LLC fee on California-source income that a California LLC owes. What changes is the paperwork: a Delaware LLC files in two states and has to keep both sets of filings current.
This guide answers the question "should I form in Delaware instead of California?" for a business that actually operates here. It covers the tax result first, then the extra paperwork a Delaware LLC adds, then a plain way to decide.
The tax result: Delaware does not change California's bill
California taxes an LLC based on whether it is doing business in California, not on where it was formed. Under the Franchise Tax Board's rules, an LLC is doing business in California if it does any of the following:
- Engages in any transaction for financial gain in California
- Is organized or commercially domiciled in California
- Exceeds the yearly California sales, property, or payroll thresholds
For 2025, the thresholds were $757,070 of California sales, $75,707 of property, or $75,707 of payroll. These amounts are indexed each year, so check the Franchise Tax Board for the current year before you rely on them.
A Delaware LLC that meets any of these tests owes the $800 minimum annual franchise tax under Revenue and Taxation Code 17941. It pays that tax with Form FTB 3522 by the 15th day of the 4th month of its taxable year. This applies to every LLC organized or registered in California in 2024 through 2026, starting in its first year.
On top of the $800, the LLC owes an annual LLC fee based on its total California-source income under Revenue and Taxation Code 17942:
| California-source total income | Annual LLC fee |
|---|---|
| Less than $250,000 | No LLC fee |
| $250,000 to $499,999 | $900 |
| $500,000 to $999,999 | $2,500 |
| $1,000,000 to $4,999,999 | $6,000 |
| $5,000,000 or more | $11,790 |
The fee is calculated on gross income plus cost of goods sold assigned to California, not on gross receipts. Bookkeeping that tracks only receipts can understate the figure, so ask your CPA to run the calculation.
The first-year rule is narrower than many people remember. The old first-year exemption covered only LLCs organized or registered from 2021 through 2023. An LLC whose first taxable year begins in 2027, 2028, or 2029 pays $400 in year one under Revenue and Taxation Code 17941(g)(2). Confirm that first-year amount with the Franchise Tax Board before you budget for it.
Do I need to register a Delaware LLC in California?
If your Delaware LLC is doing business in California under the tests above, plan to register it. Registration happens with the California Secretary of State on Form LLC-5, which costs $70. You must attach a certificate of good standing from Delaware issued within the past six months.
Registration also brings California obligations that a Delaware filing does not cover:
- California agent for service of process: You must name an individual who lives in California or a corporation that holds a Corporations Code 1505 certificate. A corporate agent does not list a street address.
- California office: The LLC must keep an office in California. It does not have to be a place where business activity happens.
- Statement of Information (Form LLC-12): File it within 90 days of registering, then every two years during the six-month window ending on the last day of the anniversary month. The fee is $20. If you miss it, the FTB assesses a $250 penalty after the Secretary of State sends a notice.
You also keep Delaware's own requirements current, including its annual filings and its registered agent. Check with the Delaware Division of Corporations for its formation fee and annual tax, since those amounts are not part of this comparison.
What a California LLC pays by comparison
A California LLC files Articles of Organization (Form LLC-1) for $70 and processes online filings in about 5 business days or less. It files the same $20 Statement of Information, and it owes the same $800 minimum tax and the same LLC fee. If you want to hold a name while you finish paperwork, a name reservation costs $10 and lasts 60 days.
The table below puts the two paths side by side:
| Requirement | California LLC | Delaware LLC doing business in California |
|---|---|---|
| Formation filing | Form LLC-1, $70 | Delaware formation filing (check the Delaware Division of Corporations for the fee) |
| California registration | Not applicable | Form LLC-5, $70, with a Delaware certificate of good standing |
| California agent and office | Required | Required |
| Statement of Information | $20, within 90 days, then every two years | $20, same schedule |
| $800 minimum franchise tax | Yes | Yes |
| LLC fee on California income | Yes | Yes |
| Delaware annual filings and agent | No | Yes (check with Delaware) |
The Delaware column adds steps and fees but no California tax savings.
Other points that do not change the math
Series LLCs. A Delaware series LLC gains nothing in California. California does not allow a domestic series LLC, and it taxes each series of a registered foreign series LLC separately. A Delaware series structure does not reduce what you owe here.
Licensed professions. An LLC cannot render a licensed professional service in California, whether it was formed in Delaware or here. Licensed professionals use a professional corporation instead.
Corporations. The same logic applies to corporations. A Delaware or California C corporation that operates in California pays 8.84% on its California income and the $800 minimum, except that a newly incorporated or qualified corporation owes no $800 minimum in its first taxable year. An S corporation pays 1.5% of net income with an $800 minimum.
Delaware's corporate law. Some founders choose Delaware for its corporate law or because they are familiar with it. That is a legal question, not a California tax question. Ask your attorney or your investors whether it matters for your deal.
How to decide
Use these steps to choose a path. This is a comparison of steps, not legal advice.
- If the business and owners are in California and customers are here, a California LLC usually costs less in paperwork. Both entities pay the same California tax, so a Delaware LLC adds a second state's filings without removing any California obligation.
- If you have a specific reason for Delaware, such as your attorney's advice or an investor's request, form in Delaware and budget for the California registration, agent, office, Statement of Information, and both states' annual costs.
- If you are unsure, talk to a qualified attorney or CPA before you file. A professional can review your California income, your owners' locations, and your growth plans.
Start with the official sources before you file. The California Secretary of State, Business Programs Division covers LLC-1, LLC-5, and LLC-12 filings and the online portal at bizfile Online. The Franchise Tax Board handles the $800 tax and the LLC fee. Delaware's formation and annual requirements sit with the Delaware Division of Corporations.
This article is informational content, not legal or tax advice. Thresholds, first-year amounts, and fees change, so confirm current figures with the Secretary of State, the Franchise Tax Board, and the Delaware Division of Corporations before you file. For complex situations, consult a qualified attorney or certified public accountant who works with California businesses.