Statutory Authority & Who Pays
California imposes a gross-receipts (“LLC”) fee—separate from the $800 franchise tax—under R&TC § 17942. Any LLC “doing business” or registered in California must pay the fee if its total California income (apportioned or sourced) meets the thresholds below, regardless of profit or loss. Federal entity classification under IRC § 7701 does not affect the fee.
2025 Fee Schedule (Unchanged Since 2024)
| California Income | Fee (Form 3536) | Effective Rate* |
|---|---|---|
| $0 – $249,999 | $0 | 0 % |
| $250,000 – $499,999 | $900 | up to 0.36 % |
| $500,000 – $999,999 | $2,500 | up to 0.50 % |
| $1,000,000 – $4,999,999 | $6,000 | ≤ 0.60 % |
| $5,000,000 + | $11,790 | ≤ 0.24 % |
*Effective rate = fee ÷ upper-tier revenue. Tiers confirmed by Franchise Tax Board guidance for 2024–25 tax years.
What Counts as “Total California Income”?
- In-state sales of services or subscriptions (market-based sourcing, R&TC § 25136-2).
- CA-sourced intangibles—e.g., software licenses to California customers.
- Worldwide revenue apportioned to California via the single-sales-factor formula if the LLC has sales inside and outside California.
Step-by-Step: Calculating & Paying the Fee
- Forecast California Revenue Early
- If you expect to exceed $250,000 in California receipts, budget for the fee.*
- File/Pay by the 15th Day of Month 6
- Example: tax year starts Jan 1 2025 → fee due June 15 2025.
- Complete Form 3536
- Line 1. CA SOS file #, FEIN.
- Line 2. Taxable year beginning & ending.
- Line 3. Check the correct tier and enter fee.
- Submit Payment
- Web Pay ACH (no cost) or mail Form 3536 with check to FTB PO Box 942857, Sacramento CA 94257-0651.
- True-Up on Form 568
- If actual receipts exceed the estimate, pay the difference (plus potential 10 % underpayment penalty under R&TC § 17942(d)).
- Tip: You can avoid the 10 % penalty if the estimate equals or exceeds the fee paid for the preceding tax year.
Worked Example – SkyScale AI, LLC
| Item | Amount |
|---|---|
| Total worldwide receipts | $3,200,000 |
| California sales factor | 70 % |
| Total California income | $2,240,000 |
| Applicable tier | $1 M – $4.999 M |
| Fee due 6-15-2025 | $6,000 |
SkyScale remits $6,000 on Form 3536 in June. When it files Form 568 in April 2026, actual CA income is $2,300,000, so no additional fee or penalty is owed.
Strategies to Keep the Fee in Check
- Apportion Revenue Out-of-State
- Locate servers or contract R&D outside CA to increase non-CA sales factor weight.
- Split Business Lines
- Separate consulting arm into another entity if consulting revenue pushes receipts into the next tier (mind “doing business” nexus).
- Use a Holding Company
- Hold IP in a Delaware parent; license to a CA subsidiary so only in-state user revenue is counted.
- Monitor Monthly
- SaaS billings can spike; create a rolling 12-month dashboard to avoid underpayment surprises.
Conclusion
The LLC gross-receipts fee is often the second surprise after the $800 franchise tax. SaaS founders should model California-sourced revenue early, earmark cash for the mid-June Form 3536 payment, and revisit the apportionment footprint each quarter to avoid penalties.
Call to Action
Wondering which tier you’ll hit—or how to stay below the next one?
Book a one-on-one strategy session with Anshul Goyal, CPA EA FCA to map your 2025 revenue, apportionment mix, and cash-flow plan. Schedule now
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 specializes in cross-border compliance for American businesses and Indians living in the U.S. This article is educational and does not constitute tax advice. Consult your own advisor regarding your specific facts.
Top 5 FAQs
| Question | Quick Answer |
|---|---|
| 1. Is the fee based on worldwide or CA receipts? | Only California-sourced/apportioned receipts per R&TC § 25120-25136. |
| 2. Do disregarded single-member LLCs pay the fee? | Yes—the fee is entity-level and independent of federal classification. |
| 3. Can I amend Form 3536 if my estimate is wrong? | No—you true-up on Form 568 and pay any shortfall (+10 % penalty). |
| 4. Are receipts from outside the U.S. counted? | Yes, if sourced to CA customers under market-based rules. |
| 5. Is the fee deductible on my federal return? | Generally yes, as a business expense under IRC § 162. |
About Our CPA
With 15 years of U.S. and international tax expertise, Anshul Goyal, CPA EA FCA has filed 20,000 + returns and helped clients save over $200 million. He leads Kewal Krishan & Co., advising SaaS and AI founders on entity strategy, compliance, and venture-scale tax planning.