Incorporating in Delaware changes where your corporate law lives, not where your taxes live. If the company operates in California, California taxes it, full stop. The Delaware C corp with a founder coding from an apartment in San Francisco is, in California's eyes, a California taxpayer that happens to be chartered elsewhere. This surprises a remarkable number of founders, usually via a notice with penalties attached.
Doing business in California, defined broadly
California's Franchise Tax Board treats you as doing business in the state if you actively transact for financial gain there, and the tests are easy to trip: an office, an employee, a founder working from home in the state, or crossing statutory thresholds for California sales, property, or payroll that adjust annually. A solo founder living in Los Angeles who incorporated in Delaware is doing business in California from day one, because the company's only workforce sits in the state.
Two obligations follow. First, register with the California Secretary of State as a foreign corporation, "foreign" meaning out-of-state, via a Statement and Designation by Foreign Corporation. Second, file California Form 100 each year and pay the franchise tax. Skipping registration while operating does not avoid the tax; it adds penalties, interest, and the risk of losing the right to enforce contracts in California courts until you register.
The 8.84% rate and the $800 minimum
California's corporate franchise tax is 8.84% of net income apportioned to California. For a startup whose entire team is in-state, that is essentially all of it; for a company with revenue and people spread across states, California's apportionment formula, driven heavily by where sales are sourced, decides the share. Losing money does not zero the bill: corporations owe a minimum franchise tax of $800 per year even with no profit, though California law has provided relief from the minimum for a corporation's first year, so check current FTB guidance on how the first-year rules apply to you. Add estimated payments during the year once the company owes tax, on the FTB's corporate schedule.
You still owe Delaware franchise tax too
Registering in California does not end the Delaware relationship. Delaware charges its own annual franchise tax to every corporation chartered there, calculated under either the authorized shares method or the assumed par value capital method; startups with standard 10,000,000-share structures should calculate both, because the default bill Delaware mails is often computed the expensive way and drops dramatically under the assumed par value method. The annual report and payment are due March 1.
So the steady state for a California-based Delaware startup is two filings every year: Delaware franchise tax for the charter, California Form 100 with at least the $800 minimum for the operations, plus registered agent fees in both states. That overhead is the known price of the Delaware charter investors prefer. What is not optional is pretending the company lives only where it filed its certificate of incorporation.