The California Gross Revenue Tax for LLCs

California is known as a beautiful place to live, but it is not exactly business friendly. The California gross revenue tax for LLCs is further proof of this.

California is the eighth biggest economy in the world. Despite this, it seems to always be in financial trouble in one form or another. To come up with cash, the state government passes all kinds of taxes and fees that drive residents nuts. If it wasn't for the warm whether and the beaches, most people would not put up with it. This punitive approach is particularly prevalent with limited liability companies, better known as LLCs.

In other states, you pay a small fee to form your business entity and then a yearly tax based on what you make. Not in California. No, the state adds fees and taxes left and right to suck every last bit of financial blood out of businesses and individuals alike. For an LLC, the first annoying fee is the annual $800 minimum tax for the "privilege of doing business in California."  I kid you not. That is actually what the law says. How's that for arrogance!

Ah, but $800 isn't enough. No, the state needs more and more money. To this end, a gross revenue tax is applied to LLCs. Think about that for a minute. A gross revenue tax. This means that you have to pay the tax whether you are profitable or not. It is a tax like this that gives California its reputation as one of the most unfriendly business states in the nation.

So, how does this tax work? Well, it is applied based on your gross revenues for the year. Here's the application:

$0 to $249,999 - No Tax
$250,000 to $499,999 - $900 tax
$500,000 to $999,999 - $2,500 tax
$1,000,000 to $4,999,999 - $6,000 tax
$5,000,000 or more - $11,790 tax

The really maddening thing about this tax is it applies only to limited liability companies. Many small businesses form an LLC thinking it gives them a break when nothing could be further from the truth in California. In this state, it results in an extra tax. Consider a corporation in contrast. There is no gross revenue tax. Instead, you pay 1.5 percent on your net income. Since deductions usually can be maximized, net income should be minimal and so should the tax.

The California gross revenue tax for limited liability companies in an abomination. If you are considering creating a LLC, you may want to go another direction.

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