If you can't come up with US$ 800 a year to pay a business tax you're pretty much bankrupt already and it wasn't the tax that killed you.
That is not only condescending but also insulting to people who are working very hard to just survive.
I would respectfully request you to come down from your ivory tower of tech employment and notice the small people. My brother has an LLC and does landscaping. After paying all sort of bills and liabilities his company made $4K profits last year. $800 is pretty big amount compared to those profits. The profits might look negligible but he was able to employ 2-3 people on hourly wages, invest in buying a vehicle, equipment and so on.
When we talk about inequality we should realise that $800 flat tax hurts the poorest of poor lot more than people like you and me. This eventually adds up into making poor people even more miserable than rich people.
It could have been lot more sensible to say don't pay any taxes if you are making less than $20K profits. That would help poor people more.
I am not saying this about you but I come across so many people in tech industry who claim to have bleeding heart for poor and yet are totally ignorant of reality of poor people.
And by the way I’m not in agreement with most taxes; I am almost a Libertarian. I’m also not a Californian. I’m just saying, I think it’s not that big a deal in the grand scheme.
I'm using the language of statists because most people today are statists. It doesn't necessarily follow that I also personally agree with the idea, though I can see why you'd draw that conclusion.
No, it doesn't, you can do that as a sole prop or (non-LLP) partnership, and not pay the $800 tax applied to corporations, LLPs, and LLCs.
Asking the public at large to absorb for you (by granting you a personal liability shield) the risk that that the resources you give to the business plus those it is able to earn will not be able to meet the businesses liabilities is what you pay the $800 for. Which is why only the limited liability entities pay the tax.
It might be, but that's not what the tax is for. The $800 tax applied to LLPs, LLCs, and corporations isn't a tax on the privilege of operating a business in California: sole props and non-limited-liabilty partnerships can operate as businesses in California and don't pay the tax.
The privilege you pay for with the tax is that of offloading business failure risk onto the public while protecting your own personal assets with a publicly granted corporate liability shield.
They often convert to an LLC or corporation if they scale beyond a very small operation, because at any but the smallest scale $800/year is nothing (it's less than the wages—not total cost—of a full time minimum wage employee in the state for two weeks.) But, you only need to start that way when you have or are seeking early investors that are protecting substantial assets outside the business; lots of people starting a small business sink most of their personal assets into them initially anyway, so the corporate liability shield isn't protecting anything: if the business fails, they are personally wiped out with or without it, and their exposure is limited more by personal bankruptcy than anything else.
It's simply a bad policy to start aspiring small businesses in debt. $800 isn't much to many of us on here but it is for a lot of people that want to be entrepreneurs in different fields from different backgrounds. Most businesses have other startup costs as well.
California already has the highest state income taxes. The privilege of doing business here is already accounted for. The franchise tax fee is just a bad policy and it's regressive.
And, so, they start businesses as sole proprietorships, or general or limited partnerships, and reorganize as LLCs or corporations once they've proven the idea. They are exposed to more (and the public exposed to less) risk of unmet business liability, but they can still run a business.
We always see entrpreneurs praised for taking risk, why are we hearing so much complaint that California charges for the privilege of offloading risk on to the public?
Or simply get an LLC from another state. Seems like there are states (Utah?) where there is no annual fee/tax.
I believe you only need a CA LLC if you hire employees in CA.
But no state allows you to register any entity for free. Lowest I’ve seen is South Dakota at $50 per year with no other tax on receipts.
California has a pretty progressive income tax. It's the highest at the top income bracket (> $1 mil is taxed at around 13%), but it's significantly lower at the low end than many other states including Alabama, Arizona, Connecticut, Kansas, Maine, Maryland, Minnesota, New York, Oregon, Rhode Island, Vermont, West Virginia, Wisconsin, and DC.
I'd be willing to bet that if you adjusted the brackets for cost of living, CA is taxing the poor more than those other states are.
Why bet when you could actually look up the figures yourself? California has a very progressive income tax with more brackets (ten) than other states, starting at 1% for the lowest bracket. Meanwhile North Carolina charges a flat 5.75% and Wisconsin's lowest income tax bracket is 4%.
Ask Detroit how that worked out for them.
Doing business in California: both local and foreign LLCs doing business in CA pay it.
> Why is it almost 4 times more than Delaware?
Why shouldn't it be?
> WHY does it cost $800 just to exist?
You can do business as a sole proprietor or general (or limited, but not limited liability) partnership without the franchise fee. You are paying for the right to do business in CA with a liability shield. The potential value to you (and cost to the public) of such a shield, all other things being equal, is greater in a bigger market. California has more than 30 times the population and 40 times the GDP of Delaware.
But yeah, there’s really no valid reason other than the fact that California can get away with it.