What is California’s LLC Gross Receipt Tax?

California LLC gross receipts tax preparation concept

Forming an LLC in California? Always consider California's gross receipts tax which kicks in when the LLC brings it over $250,000 of gross revenue.

by
November 16, 2023

California levies an annual gross receipts tax on LLCs operating in the state based on their total gross receipts. This tax is in addition to the $800 minimum franchise tax. Understanding how the gross receipts tax works is crucial for California LLCs.

Overview of Gross Receipts Tax

Mind map illustrating the key aspects of California's LLC Gross Receipts Tax, including its basis on total gross receipts, graduated tax rates, and applicability to both in-state and out-of-state LLCs.

Overview of California’s LLC Gross Receipts Tax: Understanding the Basics

    • Based on Total Gross Receipts: Tax levied annually on LLC gross receipts from CA sources.
    • Graduated Tax Rates: Rates range from $800 to $11,790 depending on gross receipt amounts.
    • Excludes Investment Income: Generally excludes receipts from passive investments like dividends, interest, royalties.
    • Applies to In-State and Out-of-State LLCs: This tax applies to all LLCs operating in CA, regardless of where organized.
    • Tax Basis is Gross Receipts: Tax does not account for deductions, expenses, losses.
Example: Mike’s CA LLC has $600,000 in gross receipts. It must pay the $2,500 tax rate for receipts of $500,000-$999,999.
Planning Tips: Track gross receipts to estimate tax liability. Review exclusions that may reduce receipts. Compare to projected net income.

FAQs:

    • How does the tax impact profitable vs unprofitable LLCs? Tax is based only on gross receipts, not profitability.
    • Can tax credits and deductions reduce liability? No, tax determination does not consider credits or deductions.
    • Are LLCs in other states subject to this tax? No, only LLCs operating in CA are subject to the tax.

How Tax is Calculated

Mind map detailing the calculation process of California's LLC Gross Receipts Tax, focusing on graduated tax brackets, included receipts, and apportionment for multistate LLCs.

Understanding the Calculation of California’s LLC Gross Receipts Tax

    • Graduated Tax Brackets: Brackets based on total gross receipts from CA sources.
    • Receipts Include: Sales, services, rents, royalties, interest, dividends (some exceptions).
    • Apportionment for Multistate LLCs: Only CA portion of receipts included based on apportionment rules.

California Gross Receipts Tax Brackets:

Total Gross Receipts Tax Amount
$250,000 – $499,999 $900
$500,000 – $999,999 $2,500
$1,000,000 – $4,999,999 $6,000
$5,000,000 or more $11,790
Example: LLC has $1.2 million in total gross receipts. 60% were derived from CA sources. Tax is based on $720,000 (60% of $1.2 million).
Planning Tips: Understand apportionment rules for multistate LLCs. Review receipt sources to determine CA allocation.

FAQs:

    • How to determine CA portion of gross receipts? Follow CA apportionment rules based on sales source.
    • How to classify out-of-state receipts? Classify based on apportionment principles.
    • Is tax based on gross profits or receipts? Tax is based solely on total gross receipts.

Reporting Requirements

Mind map outlining the reporting requirements for California's LLC Gross Receipts Tax, including annual tax return filing, first-year requirements, and potential interest and penalties.

Key Reporting Obligations for California’s LLC Gross Receipts Tax

    • Annual Tax Return: Filed using Form 109; due 15th day of 4th month after tax year end.
    • First Year Requirements: Prorated for short tax years; $800 minimum tax still applies.
    • Interest and Penalties: Apply to unpaid taxes after due date; up to 12% penalties.
Example: LLC on calendar year must file return by April 15. LLC on June 30 fiscal year must file by October 15.
Planning Tips: Calendar all filing and payment deadlines. File on time to avoid interest and penalties.

FAQs:

    • When are annual tax returns due? By 15th day of 4th month after tax year closes.
    • What if estimated tax payments were made? Can apply estimated tax payments to final liability.
    • What is the minimum franchise tax? $800 minimum franchise tax applies separately.

Understand Your LLC Tax Responsibilities

Stay compliant with California’s gross receipts tax requirements if you own a California LLC. Contact the FTB, and your California CPA, with any questions on calculating, reporting, and paying this tax.

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Also See:

What is an LLC?

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