Requirements
If your company does business in California, meaning you have an office, employees, or pay yourself a salary there, you’re required to register with the state.
When do you need to register?
Registration is required once your company has a physical presence or economic activity in California. Common triggers:
- You or a co-founder live and work in California
- You hire a W-2 employee in the state
- You have a physical office or headquarters there
If you’re incorporated in Delaware (like most startups), you register in California through a process called foreign qualification. This tells California that your Delaware company is doing business there.
If you’re only in California temporarily, like attending a YC batch, and plan to leave, you likely don’t need to register. See foreign qualification timing. How to register
Foreign qualification is handled through tools like Clerky or a startup lawyer. If you incorporated through Clerky, they offer foreign qualification as an additional service. Otherwise, most startup lawyers can file this for you quickly.
What registration triggers
Once you’re registered in California, you’re on the hook for the state’s annual filings and taxes, even if you later leave the state. Withdrawing your registration (de-registering) is its own process involving more forms, fees, and time. So only register when you actually need to.
Taxes
Once registered, your company is responsible for two types of California state taxes each year:
Income tax
This is a tax on your company’s net income in California, the same concept as federal income tax, just at the state level. If your company had no profit, you owe $0. Your tax preparer or Finta handles this filing alongside your federal return.
Franchise tax
This is a flat annual fee your company pays to California for the right to do business in the state. It’s not based on how much you earned. Think of it as a registration renewal. You owe it every year you’re registered, regardless of revenue or profit.
The franchise tax is the one that trips up most founders, so the next section covers it in detail.
Annual franchise tax
How much is it?
The minimum is $800 per year. Most early-stage startups pay this flat amount regardless of revenue or profit.
Companies with net income above $250,000 may owe more (8.84% of net income), but if your startup isn’t profitable yet, expect the $800 minimum.
First-year waiver
California waives the $800 franchise tax for your company’s first year of registration.
Why am I paying for 2026 franchise tax when I’m filing 2025 taxes?
Income taxes are filed for the prior year. In 2026, you file your 2025 income tax returns. California’s franchise tax is different. It’s charged for the current year, not the prior year. So in 2026, you pay the 2026 franchise tax.
That’s why your tax summary shows 2025 for income taxes but 2026 for the franchise tax. It’s not an error.
Example: You’re filing your 2025 taxes in 2026. Your summary looks like this:| Line item | Year | Why |
|---|
| Federal Income Tax | 2025 | Filing for last year’s activity |
| CA Income Tax | 2025 | Filing for last year’s activity |
| CA Franchise Tax | 2025 | Last year’s fee to operate in CA (already paid or waived) |
| CA Franchise Tax | 2026 | This year’s fee to operate in CA (due now) |
Deadline and penalties
Your 2026 franchise tax is due April 15, 2026.
How Finta handles this
We calculate and pay your California franchise tax as part of your annual tax filing. The charge shows up in your tax summary alongside your income tax filings so everything is handled together.
