California AB 85: First-Year $800 Minimum Tax Exemption
In 2020, California enacted Assembly Bill 85 (codified for LLCs in Cal. Rev. & Tax Code § 17941(g)), granting an automatic first-year waiver of the $800 annual tax for newly formed or registered LLCs, LPs and LLPs. Corporations already had their own first-year exemption under § 23153(f).
1. Which Entities Qualify for the Waiver?
Under California Revenue and Taxation Code § 17941(g), any Limited Liability Company (LLC), Limited Liability Partnership (LLP), or Limited Partnership (LP) that organized or registered between January 1, 2021 and December 31, 2023 was NOT subject to the $800 annual tax for its first taxable year. The Legislature did not extend the waiver: entities formed in 2024 or later owe the $800 in year one. Verify current FTB guidance before relying on any first-year exemption.
- C-Corporations & S-Corporations: Have enjoyed a long-standing first-year exemption from the $800 minimum tax under Cal. Rev. & Tax Code § 23153(f)(1). However, C-Corps must still pay 8.84% on any positive net taxable income.
- LLCs, LLPs & LPs: Prior to AB 85, LLCs were forced to pay $800 in their first year even if formed on December 15! AB 85 removed this penalty for first-year LLCs.
2. Does AB 85 Waive the LLC Tiered Gross Receipts Fee?
AB 85 waived only the $800 annual tax. It did not waive the California LLC gross receipts fee imposed under Cal. Rev. & Tax Code § 17942.
If your newly formed first-year LLC generates $250,000 or more in California gross receipts during its initial year, you are still legally obligated to file FTB Form 3536 and pay the applicable fee ($900, $2,500, $6,000, or $11,790) by the statutory deadline!
3. What Happens in Year Two?
Beginning in your entity's second taxable year, the $800 minimum franchise tax becomes strictly mandatory.
For calendar-year filers, the $800 second-year tax is due on April 15 of year two, submitted with FTB Form 3522 (LLC Tax Voucher) or through the California FTB Web Pay portal.
4. What Each Formation Year Owes in Year One
| Formed or registered | LLC / LP / LLP first-year $800 | Corporation first-year $800 | § 17942 fee (LLCs) |
| 2020 or earlier | Owed | Exempt | Owed if CA receipts ≥ $250k |
| 2021 – 2023 | Exempt (AB 85) | Exempt | Owed if CA receipts ≥ $250k |
| 2024 or later | Owed | Exempt | Owed if CA receipts ≥ $250k |
The corporate exemption is permanent law and never depended on AB 85. The LLC exemption was a pandemic-era measure with a fixed window; if you are forming an LLC today, budget the $800 for year one and see starting a California LLC for how formation timing affects when it is due.
5. Worked Example: Two LLCs, Two Different Years
LLC A was organized in March 2023 and had $180,000 of California receipts that year. Under AB 85 it owed nothing for 2023: no $800, and no fee because receipts were under $250,000. Its first $800 was due April 15, 2024.
LLC B was organized in March 2024 with the same receipts. It owed $800 for 2024, due by June 15, 2024 (the 15th day of the 4th month of its first taxable year, counting March as month one), and another $800 for 2025 on April 15, 2025. Same business, one year apart: an $800 difference.
The FTB has sent notices to some pre-2024 LLCs that claimed the exemption incorrectly, for example, entities that registered in 2021 but had been doing business in California earlier. If you received one, compare your Secretary of State filing date and first business activity against the rules above before paying or disputing it, and see California penalties for what an assessment includes.
Toggle the AB 85 switch in our live engine to preview your exact FTB obligations.