A small business owner's guide to the California tax rate

In addition to federal income taxes, California business owners are subject to many types of state taxes. California may directly tax certain business entities, such as LLCs. The business income will also be taxed on your personal state tax return.

According to the Tax Foundation, California ranks 48th in the nation for total business tax burden. In addition to the high cost of living, this makes California a difficult state to open a new business.

What types of business taxes do you have to pay in California?

California imposes a variety of business taxes, including income taxes, the California franchise tax, sales taxes, and employment taxes. Depending on the formation of your business, you may be subject to one or more of these types of taxes.

Corporate tax

C corporations and limited liability companies (LLCs) that elect taxation as a C corp pay a flat 8.84% corporate tax rate, as long as they have net taxable income. C corporations are taxed on form 100, which is due on the 15th day of the fourth month following the end of the tax year.

Corporate alternative minimum tax

If a C corporation does not have taxable income under the standard tax system, it must recalculate its income without certain deductions and credits. The new figure is multiplied by the flat California corporate AMT rate of 6.65%.

Franchise tax

LLCs, certain S corporations, and some C corporations are required to file and pay the California franchise tax. For limited partnerships and limited liability partnerships, this is a flat tax of $800. This also applies to LLCs with revenue less than $250,000.

For LLCs with gross revenue over $250,000, the fee increased based on revenue up to a maximum fee of $11,790. California S corporations pay a tax of 1.5% on all net income with a minimum tax of $800 per year. C corporations without a taxable income must pay the $800 minimum franchise tax in addition to the alternative minimum tax. 
LLCs are taxed on Form 568, due the 15th day of the 4th month after the end of the tax year. S corporations are taxed on Form 100S which is due the 15th day of the third month after the end of the tax year.

Sales tax

California retailers should first obtain a seller’s permit through the California Department of Tax and Fee Administration. A statewide sales tax of 7.25% is instituted on all tangible goods as well as services related to the manufacturing of tangible goods. Local jurisdictions also generally add their own sales tax of 0.10% to 1.00%. The business owner is responsible for sales tax compliance–which includes collecting and paying sales taxes and filing sales tax returns.

Employment taxes

California employers are subject to the following four taxes: 

• Unemployment tax: 3.4% on the first $7,000 in wages paid to each employee in a calendar year for the first two years, variable after
• Employee training tax: 0.1% up to $7,000 in wages per employee, per calendar year
• State disability insurance: 0.9% of employee wages
• Personal income tax: variable per employee

All four taxes are filed on Form DE9, which is due on a quarterly basis. Companies with employees should register with the California Employment Development Department.
 

California tax rates 

The California tax rate for state income taxes is as follows.

Single filer or married filing separately

• 1% on taxable income from $0 to $10,099
• 2% on taxable income from $10,100 to $23,942
• 4% on taxable income from $$23,943 to $37,788
• 6% on taxable income from $37,789 to $52,455
• 8% on taxable income from $52,456 to $66,295
• 9.3% on taxable income from $66,296 to $338,639
• 10.3% on taxable income from $338,640 to $406,364
• 11.3% on taxable income from $406,365 to $677,275
• 12.3% on taxable income above $677,276

Married filing jointly or qualifying widow(er)

• 1% on taxable income from $0 to $20,198
• 2% on taxable income from$20,199 to $47,884
• 4% on taxable income from $47,885 to $75,576
• 6% on taxable income from $75,577 to $104,910
• 8% on taxable income from $104,911 to $132,590
• 9.3% on taxable income from $132,591 to $677,278
• 10.3% on taxable income from $677,279 to $812,728
• 11.3% on taxable income from $812,729 to $1,354,550
• 12.3% on taxable income from above $1,354,551
   

Head of household

• 1% on taxable income from $0 to $20,212
• 2% on taxable income from $20,213 to $47,887
• 4% on taxable income from $47,888 to $61,730
• 6% on taxable income from $61,731 to $76,397
• 8% on taxable income from $76,398 to $90,240
• 9.3% on taxable income from $$90,241 to $460,547
• 10.3% on taxable income from $460,548 to $552,658
• 11.3% on taxable income from $552,659 to $921,095
• 12.3% on taxable income above $921,096