--- title: "California Tax Presence and Permanent Establishment Risk" description: "California's flat $800 minimum franchise tax and $70 filing fee create real risk. Teamed's EOR keeps your business clear of it." canonical: https://www.teamed.global/country-hiring-guides/united-states/california/permanent-establishment-risk --- ![California business district.](/cluster-assets/country-hiring-guides/united-states/california/permanent-establishment-risk/images/hero.webp) # Does hiring staffcreate tax presence in California.. In California, hiring through Teamed's EOR keeps payroll under our entity, so your business avoids franchise tax and permanent establishment exposure. Served by Teamed US Inc., Delaware · Payroll via SUNA Solutions Last reviewed 22 September 2026 · California guide At a glance ## California tax presence in brief California charges a flat minimum franchise tax on corporations doing business in the state, and a separate fee to register the entity with the Secretary of State. Both apply whether or not the business turns a profit. When Teamed employs your worker, that worker sits on Teamed's California-registered entity, not yours, so neither obligation lands on your books. Minimum franchise tax$800 Franchise tax basisflat Formation / registration fee$70 The exposure ## What creates permanent establishment risk in California Permanent establishment risk shows up when a foreign or out-of-state company starts acting like it has a real, ongoing presence in California. Putting someone on payroll there, renting office space, or giving a worker authority to sign contracts on your behalf can all count as a taxable presence in the state's eyes. California does not wait for you to open a formal branch. If your activity looks like doing business, the Franchise Tax Board can treat it that way, and the minimum tax obligation follows. The cost of getting it wrong ## What it costs to be wrong about presence Once a corporation is qualified to do business in California, it owes a minimum franchise tax every year on a flat basis, regardless of income. That figure does not move with revenue or losses, so even a company with no California profit still owes it. On top of that, registering the entity with the Secretary of State carries its own formation fee. Neither cost is optional once you have crossed into taxable presence territory, and neither goes away just because the hire did not work out. How Teamed removes it ## How Teamed keeps the exposure off your books Teamed already holds the California entity, already files under it, and already carries the minimum franchise tax obligation as part of running that entity. Your worker is legally employed by Teamed, not by you, so the activity that would normally create nexus stays on Teamed's side of the line. You get someone working in California without registering a corporation there, without owing the state's minimum tax, and without the filing fee that comes with standing up your own entity. The honest answer ## When an EOR is the right call, and when it isn't An employer of record is not a lesser choice while you wait to grow up. It is the right structure for a small or still-changing headcount, or when you are testing California before committing to it long term. If your California team is growing fast, or you plan to stay for years, the math changes, and owning the entity outright can end up cheaper. Talk to a member of the team about where you sit today, and use the crossover calculator to see the point where your own entity starts to make more sense. Your own entity ## Your own entity, when it's time. We set it up, migrate you in, and hand it back intact. Global Entity and Employment Operations, which we call GEMO, is how Teamed builds and hands over a real corporate entity once you are ready to own it outright, across 100+ countries. In California, that means Teamed handles the Secretary of State registration and the ongoing minimum franchise tax filings while you are still on the EOR, then transfers the finished, compliant entity to you when the timing is right, with nothing left half-built. Before you commit ## Sometimes an employer of record is the better fit If your California team is growing fast, or you plan to stay for years, the math changes, and owning the entity outright can end up cheaper. Talk to a member of the team about where you sit today, and use the crossover calculator to see the point where your own entity starts to make more sense. Contractors, employer of record and your own entity all run on one platform at Teamed, so moving between them later does not mean changing provider or re-onboarding anybody. Real HR and legal experts handle the work rather than a ticket queue. Talk to a member of the team and we will tell you plainly which one suits where you are. If you would rather look at the numbers yourself first, the crossover calculator models it on local salaries and employer costs rather than on a headcount rule of thumb. Talk to a member of the team Model the crossover for the United States Who carries it ## Your own entity, when it's time. We set it up, migrate you in, and hand it back intact. Global Entity and Employment Operations, which we call GEMO, is how Teamed forms your company, registers it for tax and payroll, runs it month to month and keeps its filings current, across 100+ countries. You stay the employer. We do the work behind it. In California, that means Teamed handles the Secretary of State registration and the ongoing minimum franchise tax filings while you are still on the EOR, then transfers the finished, compliant entity to you when the timing is right, with nothing left half-built. Entity Management (GEMO) The Graduation Model Employer cost calculator > They set up our EU entity and moved hires across without missing a payroll. *Helene Dubois, COO* Talk to an expert about California Questions ## California tax presence questions Does using an EOR in California avoid the state's minimum franchise tax? Yes, because the worker is employed under Teamed's California entity, not yours. Your business never registers its own corporation in the state, so the minimum franchise tax obligation stays with Teamed. What actually creates permanent establishment risk in California for an out-of-state company? Common triggers include putting someone on direct payroll in the state, leasing office space, or giving a worker authority to sign contracts on your behalf. California looks at the substance of the activity, not just whether you filed paperwork. How much does it cost to register a business entity in California? The Secretary of State charges a formation and registration fee, and once the entity is qualified, California applies a flat minimum franchise tax every year. That minimum tax basis does not change with profit or loss. Is California's minimum franchise tax based on how much profit the company makes? No, the basis is flat. A corporation qualified to do business in California owes the minimum tax whether it turns a profit, breaks even, or loses money that year. Can Teamed help set up a California entity later if we outgrow the EOR? Yes, through GEMO, Teamed's Global Entity and Employment Operations service. Teamed builds and files the entity, keeps it compliant while you are still using the EOR, then hands it over to you fully intact when you are ready. Where these figures come from ## Sources These figures come from the California Franchise Tax Board's Publication 1060 guide for corporations starting business and the California Secretary of State's business entity forms and fees. ## More on entities in California - [Hiring in California, overview](/country-hiring-guides/united-states/california)parent - [California setting up](/country-hiring-guides/united-states/california/entity-setup)sibling - [California running costs](/country-hiring-guides/united-states/california/entity-running-costs-and-filings)sibling - [California entity or eor](/country-hiring-guides/united-states/california/eor-vs-entity)sibling - [California moving from an eor](/country-hiring-guides/united-states/california/moving-from-eor-to-your-own-entity)sibling - [Set up an entity, by country](/entity-setup-by-country)hub - [Entity Management (GEMO)](/entity-management)core - [Talk to an expert about California](https://www.teamed.global/contact?from=permanent-establishment-risk)CTA