August 15, 2025
Forming an LLC can present many crucial benefits for business owners. Their personal assets are generally shielded from lawsuits and business debts, and they can enjoy tax flexibility.
However, the benefits of LLCs and how they work can vary from state to state. Below, we compare LLC costs in California and Texas, as well as how doing business in these two states differs.
LLC Formation California vs. Texas: The Costs
Running a business isn’t free, and there can be costs associated with everything from filing to form an LLC to paying taxes on it.
In Canada, it costs $70 to file an LLC and an additional $20 to file the Statement of Information (Form LLC-12). While these fees are low, there is also an annual franchise tax of $800. You must make this payment even if your LLC is inactive. This tax applies to all LLCs regardless of how much they make.
In Texas, filing a certificate of formation is $300. There can sometimes be additional small fees for things like using a credit card and reserving a name. There are no corporate taxes in Texas, but you pay a franchise tax and sales tax based on your revenue.
California vs. Texas Taxes
The more your business pays in taxes, the less money it gets to keep in its bank account. That’s why comparing business taxes in California and Texas can be worthwhile before forming an LLC.
Personal Income Tax
When comparing all tax types, among the most significant differences are those involving personal income taxes. In California, the rates range from 1% to 12.30%. These are easily some of the highest tax rates in the country.
However, in Texas, there is no personal income tax. This means that business owners have more money to invest in their businesses, save, and spend in their communities.
Corporate Tax
Just like personal income taxes, Texans also don’t pay corporate tax. However, businesses with gross receipts above $1.23 million must pay franchise tax. This rate differs based on industry. In California, corporations pay 8.84%, and S corporations pay 1.5% on their net income.
Sales Tax
If you’re looking to make as many savings as possible in your business, it would make sense to do business in Texas over California. This is because the sales tax rate in Texas is lower. In California, the base sales tax rate is 7.25%. However, as cities and counties can apply additional taxes, it’s not uncommon to pay around 10% in sales taxes.
In Texas, there is a state-wide tax rate of 6.25%. Jurisdictions can also add additional taxes, but the maximum amount of sales tax paid is 8.25%.
Employment Taxes
There are four state payroll taxes in California: unemployment insurance, employment training tax, state disability insurance, and personal income tax. These are all withheld from employee wages.
In Texas, there are fewer regulations in this area, which means there are lower unemployment tax rates.
Benefits of LLC Formation in California vs. Texas
There is so much to think about when you’re deciding to form an LLC, especially when you’re choosing between two states. Even when you compare LLC costs of California and Texas, and one state proves more desirable than the other, there are other advantages to think about:
In California:
- Better access to talent, with diverse markets, small business support programs, and Silicon Valley on the doorstep with venture capital and a highly-skilled workforce
- California has an excellent reputation and high credibility levels for innovation and business growth, which can make it easier to attract clients and investors
- Your personal assets are protected from business debts and litigation
- There is taxation flexibility because LLC members report profits and losses on their individual tax returns
In Texas:
- A simpler filing process with minimal record-keeping requirements
- Business-friendly environment that supports minimal regulations
- A state stock exchange to support business growth
- Flexible structure with unlimited members allowed
- Members can remain anonymous on formation documents
- Pass-through taxation, in which profits flow through to personal tax returns
Should I Form an LLC in California or Texas?
Whether you file an LLC in California or Texas can depend on your goals. If you want to pay as few taxes as possible, Texas can be the right decision to make. However, if you require a rich business ecosystem with great opportunities for growth, California might appeal to you more.
Form an LLC with Help from Nue Biz
Whether you decide to form an LLC in California or Texas, Nue Biz is here to guide the way. We can help you start your new business today with a 100% online process. You don’t need to worry about paperwork or hassle, and you can file your LLC in just minutes! Start the process now – contact Nue Biz to learn more.
Nue Biz is an independent filing service dedicated to helping customers set up their businesses. We do not provide legal or financial advice; please consult a professional for specific guidance.
