What Is the California LLC Gross Receipts Tax?

Limited liability companies (LLCs) conducting business in California are subject to a gross receipts tax, officially referred to as the LLC fee. This fee is levied on LLCs with significant annual revenues generated within the state. It is a distinct financial obligation separate from the annual $800 franchise tax that every LLC registered or operating in California must pay, regardless of its income or business activity.

This fee structure was established to apply a variable tax based on the total income an LLC earns in California. Unlike the flat franchise tax, the LLC fee is tiered, meaning the amount owed increases as the company’s revenue crosses certain thresholds. This approach is different from how corporations are taxed in the state, which is based on net income.

Determining if the Fee Applies

The obligation to pay the California LLC fee is triggered when an LLC’s total annual income derived from or attributable to California sources reaches $250,000. This threshold applies to any LLC doing business in the state, regardless of where the entity was formally organized.

The term “total income” or “gross receipts” is defined broadly by the California Franchise Tax Board. It encompasses all revenue from all sources connected to the state before the deduction of any costs, expenses, or returns. This includes revenue from the sale of goods, fees for services performed in California, and income from property located in the state.

For example, if an out-of-state LLC provides consulting services to a client in California, that revenue is considered California-source income. The calculation is based on the total amount received or accrued during the taxable year, without subtracting costs of goods sold or operational expenses.

Calculating the LLC Fee

The amount of the LLC fee is determined by a tiered schedule based on the LLC’s total California income. For LLCs with total income between $250,000 and $499,999.99, the fee is $900. For income from $500,000 to $999,999.99, the fee is $2,500.

An LLC with total California income between $1,000,000 and $4,999,999.99 owes a fee of $6,000. For LLCs with total income of $5,000,000 or more, the fee is $11,790. These amounts are fixed for each tier, so the calculation does not involve percentages or complex formulas once the total income is determined.

To illustrate, if an LLC’s total income attributable to California for the taxable year is $750,000, it falls into the second income tier. Consequently, the LLC is required to pay a fee of $2,500. Similarly, an LLC with $1.2 million in California gross receipts would owe the $6,000 fee.

Information and Forms for Payment

The primary document for this purpose is the LLC Estimated Fee for Taxable Year, also known as Form 3536. This form is used to report and pay the estimated fee based on the LLC’s projected annual gross receipts.

To complete Form 3536, the LLC will need:

• Full legal name
• California Secretary of State (SOS) file number
• Employer Identification Number (EIN)
• Its accounting period
• The calculated estimated fee amount based on the income tiers

The official Form 3536 can be downloaded directly from the California Franchise Tax Board’s website. The estimated fee entered on the form should correspond to the income bracket the LLC anticipates it will fall into for the current taxable year.

How to Pay the LLC Fee

The California Franchise Tax Board offers several methods for payment. One common option is to pay online through the FTB’s Web Pay system, where business owners can authorize a direct transfer from a bank account. This method provides an immediate confirmation number, serving as proof of payment.

Alternatively, payment can be made by mail. This requires sending the completed Form 3536 along with a check or money order to the address specified by the FTB. When paying by check, it is advisable to write the LLC’s name, California SOS file number, and the tax year in the memo line to ensure the payment is correctly applied to the LLC’s account.

The deadline for paying the estimated LLC fee is the 15th day of the 6th month of the LLC’s current taxable year. For LLCs that operate on a calendar year basis, this due date is typically June 15th. Failure to pay the fee by this deadline can result in the assessment of penalties and interest.