Key Takeaways

  • S corporations in California must pay the greater of 1.5% of net income or $800 as the minimum franchise tax annually.
  • Payment is required even if the business earns no income or is inactive.
  • Payment options include online via Web Pay, mailing a check with FTB Form 100-ES, or using third-party tax software.
  • First-year exemptions are available for newly formed or qualified corporations.
  • Avoid penalties by understanding deadlines and filing requirements—even if no tax is due.
  • Closing your business doesn’t eliminate the tax unless you file for dissolution properly with both the California Secretary of State and Franchise Tax Board.

$800 Minimum Franchise Tax Overview

The $800 minimum franchise tax is the minimum franchise fee that a corporation will have to pay to operate in California, which is similar to the tax situation in many states. What is not similar, however, is the structure and rate of this tax. For California companies, the franchise tax will be either a percentage of their income or $800, whatever is larger.

In California, the tax rate for corporations is:

  • S corporations: 1.5%
  • C corporations: 8.84%
  • Professional corporations: 8.84% unless they elect S corp status

Whether or not a corporation is native to the state or not makes no difference insofar as the tax rates are concerned: domestic and foreign (out-of-state) businesses both pay the same tax rate. Likewise, whether or not a corporation is active, inactive, filing a short-period return (under 12 months), or operating at a loss has no effect on the tax rate. This means that even if your company does not operate and shows no profit, it must still pay the $800 minimum by virtue of existing. Thus, the only way to avoid the tax is to dissolve the company.

Additionally, another important detail to note is that if you change your business structure during the year–for instance, from an LLC to a C corporation–you would then be subject to the minimum franchise tax on both entities for that year.

This franchise tax, either single or double, must be paid in the first quarter of your business’s accounting period regardless of the business’s status. In most cases, this tax will be due by the 15th of April. Paying the minimum franchise tax may be done by either using Form FTB 100-ES or California’s Web Pay for Businesses, both of which are submitted to the Franchise Tax Board.

How Do I Pay the $800 Minimum Franchise Tax for an S Corp?

S corporations operating or registered in California must pay an annual minimum franchise tax of $800, or 1.5% of their net income—whichever is greater. Even if your S Corp has no income or is inactive, you're still liable for this tax unless you qualify for an exemption.

There are several ways to pay:

1. Pay Online via Web Pay for Businesses:

  • Go to the California FTB Web Pay portal.
  • Select the “Corporation” option and log in using your entity information.
  • Choose “Estimated Tax Payment” and select the tax year.
  • Submit your $800 payment.

2. Pay by Mail with FTB Form 100-ES:

  • Download and complete Form 100-ES (Estimated Tax for Corporations).
  • Mail it with a check payable to the "Franchise Tax Board."
  • Write your California Corporation Number and tax year on the check.
  • Mail to:
    Franchise Tax Board
    PO Box 942857
    Sacramento, CA 94257-0531

3. Use Third-Party Tax Software or Tax Professionals:

  • Many tax software programs include state tax filing options that support Form 100-ES.
  • You may also authorize a CPA or tax professional to make payments on your behalf.

Payment Deadlines:The $800 minimum franchise tax is typically due on the 15th day of the 4th month after the beginning of your tax year (generally April 15 for calendar year filers). For new corporations, this is usually your first estimated tax payment deadline.

What Happens if You Don’t Pay on Time?Failure to pay on time can lead to penalties, interest, and potential suspension or forfeiture of your business’s rights and powers in California.

Franchise Tax Exemptions

Because of its unusually high franchise tax rate, California has gained a reputation as being a state unwelcoming to new businesses, even though state tax requirements are based on where business is conducted, not where a business is incorporated, so foreign businesses would be subject to the same tax. This is as it would be in many other states, as taxing foreign companies as domestic companies is common. Nonetheless, the reputation persists, even though there are some important exemptions to the tax:

  1. The First-Year Exemption. California will waive the minimum franchise tax for the first year a corporation exists. Instead, the franchise tax on net income will be applied, which may be less than the $800 minimum a company would normally have to pay. This exemption was passed specifically to combat the reputation that California was a state adverse to new business, or business in general.
  2. The 15-Day Rule. If a business incorporates within 15 days of the end of the tax year and does not conduct business in those 15 days, then it will not be subject to the minimum franchise tax. If this occurs, then the corporation will not be required to file a return, and thus no tax can be applied. The next tax year will be counted as the first tax year, and the first-year exemption will be in effect.
  3. Tax-Exempt Status. In certain special situations, companies may be granted tax-exempt status from the California Franchise Tax Board (FTB) or the California Constitution. This mostly applies to nonprofit organizations, such as charities, as well as certain veteran organizations.

Despite these exemptions, there are a variety of schemes out there to dodge the franchise tax, but they are mostly doomed to eventual failure. Aside from the above three exemptions, the only legitimate way to avoid paying the $800 franchise tax is to run a sole proprietorship, as they are not subject to the tax.

However, operating your business as a sole proprietorship comes with its own risks, the main one being that you will have no liability protection for your personal assets should you get sued, which would not be the case were your running an LCC or S corp. That said, if you are running a very small business with low risk of legal exposure, a sole proprietorship may still be the best choice for you.

Key Exceptions and Exemptions for New and Inactive S Corps

While most corporations owe the $800 minimum tax annually, the following situations may offer temporary relief:

  • First-Year Exemption for New Corporations:
    Under California Revenue and Taxation Code Section 23153(f), newly incorporated or qualified S corporations are exempt from the $800 minimum tax in their first taxable year. However, the corporation may still owe 1.5% of net income if it generates income.
  • 15-Day Short-Year Rule:
    If an S Corp is formed within the last 15 days of its taxable year and does not conduct business during that period, it is not required to file a return or pay the $800 tax for that partial year.
  • Inactive Corporations Still Owe:
    Even if your business is not generating income or operating, it still exists legally and must pay the $800 unless it qualifies for an exemption or has been formally dissolved with the Secretary of State and Franchise Tax Board.

How to Close an S Corp to Avoid Future Franchise Tax

Simply ceasing business activities is not enough to stop future $800 minimum tax liabilities. You must properly dissolve or cancel the S Corporation:

  1. File a Certificate of Dissolution or Certificate of Election to Wind Up and Dissolve with the California Secretary of State.
  2. File final tax returns with the Franchise Tax Board, marking the return as “Final.”
  3. Pay any outstanding tax balances.
  4. Receive confirmation from the FTB that your business account is closed.

If you skip any of these steps, your S Corp remains active and subject to the franchise tax—even if you're no longer operating.

Tips to Avoid Common Mistakes When Paying the Franchise Tax

  • Mark Your Calendar: Payment deadlines vary depending on your fiscal year. Use automated reminders to stay compliant.
  • Don’t Skip Filing Just Because You’re Exempt: Even if you're exempt from the $800 minimum for your first year, you may still need to file a return depending on your business activity.
  • File and Pay Promptly if You Requalify: If your business was suspended and later reinstated, you may owe franchise tax for each year during which the business was considered active.

Frequently Asked Questions

1. How do I pay the $800 minimum franchise tax for an S Corp in California? You can pay via the California FTB Web Pay portal, by mailing Form 100-ES with a check, or through a third-party tax filing service.

2. When is the $800 minimum franchise tax due? For most calendar year S corporations, it’s due by April 15. For new entities, it’s due by the 15th day of the 4th month after formation.

3. Can I skip the payment if my S Corp had no income? No. Even if your S Corp had no income or was inactive, you're required to pay the $800 tax unless you're in your first year or meet specific exemptions.

4. What if I formed my S Corp at the end of the year? If your S Corp was formed during the last 15 days of the tax year and did not conduct business, you may be exempt from the tax for that year.

5. How do I stop paying the $800 if I close my business? You must officially dissolve your S Corp with both the California Secretary of State and Franchise Tax Board. Failing to do so can result in continued tax obligations.

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