The $800 lands whether the year was good or not: franchise tax on a California contractor

The year was flat. Two jobs went sideways, one customer paid ninety days late, and you took less out of the business than you did the year before. Then the bookkeeper tells you California wants $800, and if you run an LLC, several thousand more on top.

That is not an error and it is not a penalty. It is what a California entity costs to exist. The minimum annual franchise tax is $800 for a corporation and for an LLC (FTB), and it is a floor rather than a share of anything. An LLC then owes a gross receipts fee on top, running from $900 up to $11,790 by tier (FTB), charged on revenue rather than on profit.

Once you see it as a cost of the entity rather than a cost of the work, it stops being a shock in April and becomes a line in your overhead, which is where it belongs. This page is what you owe, where the tier steps sit, one contractor's season with real dates on it, and how to get the money back out of your prices instead of out of your pocket.

The $800 is the floor, and it does not care about your year

Two facts do most of the work here.

It is owed by the entity, not by the person. A sole proprietor with no entity does not pay it. Form a corporation or an LLC and it starts. That single line is why the entity decision in California is a different decision from the same question in most other states, and it is worked through in full in sole owner against LLC.

It is a minimum, not a rate. A corporation that made nothing owes the $800. A corporation that made money owes the greater of the $800 or its tax computed on income. The floor is the part that surprises contractors, because construction has bad years by design: a season with one large bad debt or one job that ran long can produce a real loss, and the $800 arrives anyway.

An entity that exists owes it. That is the whole rule, and it is the reason the shell company somebody set up for a single job in 2024 and never dissolved is still generating a bill.

The LLC fee is charged on revenue, which is the part that stings

If you hold an LLC, the $800 is only the start.

Gross receipts. Not profit, not margin, not the money you paid yourself. Revenue as it crosses the books.

For most businesses that distinction is academic. For a contractor it is the entire subject. A remodeler's $180,000 kitchen carries cabinets, tile, appliances and lumber that were bought and passed through at a modest markup. A mechanical sub's tenant improvement is half rooftop units. A concrete contractor buys ready mix by the yard. All of it is gross receipts, all of it counts toward the tier, and none of it was ever yours to keep.

So the fee reads a contractor at $1,050,000 of revenue and $85,000 of owner's pay exactly like a designer at $1,050,000 of revenue and $700,000 of owner's pay. Both are in the $6,000 tier. Only one of them barely notices. Knowing which materials are yours as a consumer and which are sold on as fixtures also changes what your books look like, and that split is in the California sales tax guide.

The steps are cliffs, not slopes

This is the part worth knowing in November rather than in March. The fee does not rise smoothly with revenue. It jumps on a single dollar.

A contractor closing the year at $999,000 pays $2,500. The same contractor at $1,000,000 pays $6,000. One thousand dollars of extra revenue carries $3,500 of extra fee.

That does not mean turn work down. It means the last job of the year has a price attached to it that the first job of the year did not, and you should know the price before you sign rather than after.

One season, with dates on it

A C-8 concrete LLC in Riverside County, calendar year 2026.

Work the November decision properly, because this is the one place the fee actually changes what you do.

Taking the job moves the year from $955,000 to $1,025,000. The fee moves from $2,500 to $6,000, a step of $3,500. At a 15 percent margin, $70,000 of revenue carries $10,500 of margin. Subtract the step and $7,000 is left.

Take the job. Seven thousand dollars of margin is seven thousand dollars of margin, and turning down work to manage a tax tier is how businesses get small. But notice the second option that only exists because you did the arithmetic on 9 November instead of the following April: if the customer can start in the new year, invoicing that pour on 5 January 2027 keeps the whole $10,500 and opens 2027 at $70,000 rather than at zero. Same work, same crew, same customer, $3,500 better, decided by a conversation about a start date.

That is the entire practical value of understanding this. Not avoidance. Timing, and knowing which conversations are worth having in November.

It is a cost of the entity, so it belongs in overhead

The mistake that costs the most is not misunderstanding the fee. It is charging it to the wrong place: treating it as a spring surprise that comes out of your own draw, rather than as a fixed annual cost recovered across everything you bid.

Close the Riverside year at $1,025,000 in gross receipts. The entity owes $800 plus $6,000, so $6,800 (FTB). Say the year ran to 34 jobs, from a $4,000 patio to that $95,000 site package.

• Across 34 jobs, that is $200 a job.
• Against $1,025,000 of revenue, that is two thirds of one percent.

Two hundred dollars a job. That is the size of the thing that ruins somebody's April. Loaded into your overhead rate at the start of the year alongside your insurance, your truck payments, your license renewal and your bond premium, it is invisible. Left out of your overhead rate, it comes out of the only unbudgeted pot in the business, which is you.

So put it in the number. Add the $800, add your tier from the table above, add the CSLB renewal and the bond premium, divide by the revenue you expect, and carry it in your markup like every other fixed cost. The markup and margin calculator is free, needs no signup and will show you what a two thirds of one percent overhead addition does to a bid, which for most contractors is less than the rounding they already do on the labor line. Building the whole overhead figure from the ground up is what to charge as a California contractor.

The corporation reads differently, and that matters at this scale

The gross receipts fee is an LLC charge. A corporation pays the $800 minimum, and above a level of profit its tax is computed on income instead, which means the corporation is charged on what the year produced while the LLC is charged on what passed through it.

For a contractor with high revenue and a thin margin, those two sentences point in different directions, and the gap is widest exactly in the $500,000 to $5,000,000 band where most growing construction businesses live. A busy sub at $1,200,000 of revenue and a modest profit is paying $6,800 as an LLC on revenue that was mostly materials and payroll. That is the arithmetic worth doing on your own numbers before you form anything, and it is laid out with the CSLB fees alongside it in sole owner against LLC in California.

If you have not formed anything yet, the order the whole start runs in, and where the entity decision sits inside it, is the California start guide.

Know your number in November

Everything on this page is knowable in advance, which is unusual for a tax and is the reason it is worth an hour of your attention. The $800 is fixed (FTB). The tiers are published (FTB). Your gross receipts are a number you already have, sitting in your invoices, updating every time you bill. The only thing standing between you and a fee you were never surprised by is looking at that number before the year closes rather than after.

Three habits close the subject. Know your running gross receipts by the end of every quarter. Know which tier you are in and how far the next step is. And carry the whole entity cost in your overhead rate from January, so no single job is ever paying for it.

On AEC Stack there is no monthly subscription. The platform fee is 2.5 percent of each invoice processed through the platform, so your running revenue total is the same number your invoicing already produces rather than something you assemble from bank statements in March. What that record looks like from the first invoice onward is in invoicing and getting paid in California.

Add up what you have billed so far this year, find your row in the tier table above, and see whether there is a step between you and December. Then open a working business file and put the entity cost into your overhead where it stops being a surprise.