California asks small business owners to take risks, create jobs, and invest in their communities. Then it charges many of them $800 a year simply for maintaining an LLC, whether or not the business makes a profit. (Rev. & Tax. Code, §§ 17941, 23153.)
For a large company, $800 may be a minor expense. For someone working to get a business off the ground, or trying to keep one alive through a slow year, it can mean equipment, advertising, insurance, or money needed to pay another bill.
That is why Capitol Business Alliance has made LLC tax reform a priority. Small business owners deserve a stronger voice in Sacramento, and this is a concrete place to start.
Senator Choi’s bill offered broader relief
Senator Steven Choi’s Senate Bill 347 addressed the annual tax paid by LLCs and certain partnerships. As amended January 15, 2026, it would have reduced the tax from $800 to $600 for taxable years beginning in 2026 through 2030. Its earlier January version proposed a reduction to $200. (Sen. Bill No. 347 (2025–2026 Reg. Sess.) as amended Jan. 15, 2026; Franchise Tax Bd., Bill Analysis, SB 347, pp. 1–2.)
The distinction matters: SB 347 would have provided recurring relief to covered businesses, including existing businesses, during that period. It was not limited to an entity’s first year.
But the Senate Appropriations Committee held the bill in committee on January 22, 2026. It did not become law. (Sen. Com. on Appropriations, Hearing Results (Jan. 22, 2026) p. 1.)
We appreciate Senator Choi’s effort to address this burden. The proposal demonstrated that lawmakers can consider relief beyond a temporary incentive to form a new business. Existing owners need help, too.
What SB 122 actually changed
Later in the year, the Legislature enacted a narrower reduction through Senate Bill 122, a budget trailer bill approved June 29, 2026. (Stats. 2026, ch. 23, §§ 25–27.)
For qualifying LLCs whose first taxable year begins on or after January 1, 2027, and before January 1, 2030, the annual tax is reduced from $800 to $400 for that first taxable year. The provision also covers qualifying limited partnerships and limited liability partnerships. (Rev. & Tax. Code, §§ 17935, subd. (f)(2), 17941, subd. (g)(2), 17948, subd. (e)(2).)
That is real savings, and we welcome it. But business owners should understand the limits.
The reduction applies to the first taxable year only. It does not give existing LLCs a $400 annual tax beginning in 2027, and it does not provide three consecutive years of reduced payments to a newly formed LLC. Under current law, the ordinary $800 annual tax applies in subsequent years, unless a separate exemption applies.
A qualifying new LLC receives a $400 break once. An existing LLC receives no reduction under this provision.
We can welcome that relief and still insist that California has more work to do.
Starting a business is only part of the challenge
The problem with the $800 annual tax is that it generally does not adjust to whether an LLC is profitable. Subject to statutory exceptions, the obligation can continue even when the company is not conducting business, until it is properly canceled.
A business can have customers, expenses, and a full work schedule without having much left over at the end of the year. A flat annual tax takes a larger share of a struggling owner’s available money than it does of a successful company’s.
California has already shown that the amount can change. The state previously provided a first-year annual-tax exemption for qualifying entities organized or registered during 2021–2023. SB 122 now provides a smaller, temporary first-year reduction. (Franchise Tax Bd., Bill Analysis, SB 347, pp. 3–4; Stats. 2020, ch. 8.)
Our position is straightforward: relief should also reach the small businesses already here, already paying, and already trying to survive.
What Capitol Business Alliance is doing
CBA is bringing business owners together around LLC tax reform and preparing to sponsor legislation in 2027. Our public events have made this effort part of the conversation with entrepreneurs and local business professionals.
We are helping owners understand the difference between a proposal and an enacted law, and between a limited first-year reduction and broader reform. Those distinctions affect what people owe and what they should expect from Sacramento.
Our goal is lasting, meaningful relief that includes existing small businesses. We want business owners to have a voice in that discussion before decisions are made.
There are budget questions to answer. Tax reductions affect state revenue, and any serious proposal has to account for that. But the state’s fiscal concerns should not end the conversation about the costs it imposes on small businesses.
Business owners have budgets, too.
If the $800 LLC tax has affected your ability to start, maintain, or grow your business, we want to hear from you. Join Capitol Business Alliance, share your experience, and help us make the case for reform.
Have a story or insight to share? CBA members and partners are welcome to contribute.
