Why Your Delaware Series LLC Still Owes California Money
- State Nexus Rule. California imposes its annual $800 franchise tax on every entity “doing business” in the state or registered with the Secretary of State—no matter where it was created (R&TC § 17941, § 23101).
- Series Treated Separately. The Franchise Tax Board (FTB) treats each protected series as its own LLC for tax purposes. If five series transact in California, each owes an $800 tax (plus the LLC fee if receipts exceed $250 k).
- LLC Fee Layer. Once California-sourced receipts hit $250,000, each active series must also pay the LLC gross-receipts fee under R&TC § 17942, ranging from $900 to $11,790.
What Counts as “Doing Business” in 2025?
Under R&TC § 23101, you trigger nexus if any of these apply to a series:
| Test | 2025 Threshold* | Example for an AI SaaS Series |
|---|---|---|
| Sales Factor | CA sales > $690,000 or 25 % of worldwide sales | $1 M revenue, $800 k from CA users |
| Property Factor | CA property > $69,000 | GPU cluster colocated in a San José data center |
| Payroll Factor | CA payroll > $69,000 | Two ML engineers on W-2 in Los Angeles |
*Indexed annually; thresholds shown are the FTB’s inflation-adjusted amounts for the 2025 tax year.
Step-by-Step: Staying Compliant
- Identify Series Operating in CA
- Review customer billing addresses, physical assets, and employee locations.
- Register Each Active Series with California SOS on Form LLC-5 (foreign registration).
- Pay the $800 Tax for every series doing business—due by the 15th day of month 4 using FTB 3522.
- Estimate the LLC Fee if CA receipts may exceed $250 k; remit FTB 3536 by month 6.
- File Form 568 for each taxed series (or one combined Form 568 with subsidiary schedules if the master LLC elects unified filing).
- Track Gross Receipts Separately—a protected series can owe the fee even if the master LLC does not.
- Cancel Foreign Registration Promptly for dormant series; the $800 tax accrues until SOS receives a Certificate of Cancellation.
Worked Example — ShieldNet Master LLC
| Protected Series | CA Sales 2025 | Doing Business? | 2025 CA Taxes |
|---|---|---|---|
| Series A (SaaS) | $820,000 | Yes (sales test) | $800 + $2,500 LLC fee |
| Series B (IP Holding) | $0 | No | $0 |
| Series C (Consulting) | $140,000 | Yes (payroll $90 k) | $800 |
| Series D (R&D Lab) | $60,000 | Yes (property $120 k lab equip.) | $800 |
| Series E (Future) | None yet | No | $0 |
Total 2025 California cost: $4,900 for the three active series.
Practical Tips for Founders
- Segregate Accounting. Keep separate ledgers for each series to document CA receipts and nexus tests.
- Strategic “Series Budget.” Spin up a new series for non-CA markets to avoid extra $800 exposure.
- Shut Down Quickly. If a series stops operating in California, file SOS Form LLC-4/7 and the final Form 568 before year-end to stop future $800 bills.
- Consider a Traditional LLC. If you need only one active line in California, a series structure may add unnecessary compliance cost.
- Monitor Annual Thresholds. The sales/property/payroll limits adjust every January—re-evaluate nexus each year.
Conclusion
A Delaware Series LLC may streamline asset protection, but California views each busy series as a stand-alone LLC—and charges for the privilege. Model the $800 tax and possible gross-receipts fee for every active cell before you expand west of the Sierra.
Call to Action
Unsure which series trigger California tax—or how to restructure before launch? Schedule a strategy session with Anshul Goyal, CPA EA FCA: https://calendly.com/anshulcpa/
Disclaimer
Anshul Goyal, CPA EA FCA, is a licensed Certified Public Accountant in the United States and an Enrolled Agent admitted to practice before the IRS. He represents clients in tax litigation and assists American businesses and Indians in the United States with cross-border compliance. This article is for educational purposes only; seek professional advice tailored to your situation.
Top 5 FAQs
| Question | Short Answer |
|---|---|
| 1. Does every Delaware series need a separate CA foreign registration? | Yes—each series doing business must file SOS Form LLC-5. |
| 2. If only one series sells to CA customers, do the others pay $800? | No—only series meeting “doing business” criteria owe the tax. |
| 3. Can I file one combined Form 568 for all series? | Yes; the master LLC includes Schedule EO for each series, but the $800 tax is computed per active series. |
| 4. Does CA offer a first-year waiver for series formed in 2025? | No—the AB 85 waiver expired after 2023; all series owe $800 in the first active year. |
| 5. Is a series LLC eligible for the PTET? | Yes, if taxed as a partnership/S-corp and all qualified owners consent, but the election applies entity-wide. |
About Our CPA
With 15 years of U.S. and international tax expertise, Anshul Goyal, CPA EA FCA has prepared over 20,000 returns and saved clients more than $200 million. As Managing Partner of Kewal Krishan & Co., he guides SaaS and AI founders through multi-state nexus, series LLC strategy, and venture-ready tax planning.