Actually, the Federal guidelines are to measure with the stock extended to its full length. But even collapsed, you couldn't get below 26" with a 16" barrel and a standard AR collapsable stock. Maybe with a ZM Weapons or Oly folding stock (which require custom uppers).
Note for PRK residents:
The PRK specifies that for the purposes of Kalifornistan's "Assault Weapon" laws, guns will be measured with the stocks CLOSED/FOLDED. And they extended the minimum measurement to 30" instead of 26". Anything that's too short is an AW in the PRK, regarless of features.