California Business Taxes at a Glance
California has three state tax agencies, and most businesses deal with all of them. The Franchise Tax Board (FTB) handles personal income tax and business franchise and income taxes. The California Department of Tax and Fee Administration (CDTFA) handles sales and use tax. The Employment Development Department (EDD) handles payroll taxes. Each has its own accounts, filing schedule, and notices. BOMCAS helps California individuals and businesses keep them coordinated.
Personal Income Tax
California taxes residents on all of their income and nonresidents on California-source income, using graduated rates with an additional tax on very high incomes for mental health services. Capital gains are taxed as ordinary income at the state level.
California does not automatically follow federal tax law. It conforms to the Internal Revenue Code as of a fixed date, with its own modifications. As a result:
- Federal bonus depreciation generally does not apply in California, so state depreciation schedules differ from federal ones.
- Health savings account contributions are not deductible for California, and HSA earnings are taxable.
- Several recent federal changes do not carry over to the California return unless the Legislature acts.
We keep separate federal and California schedules where needed, so state adjustments carry forward correctly from year to year.
Residency and Leaving California
The FTB looks at the full picture of where you live: your home, family, work, professional ties, and how long you spend in the state. Leaving California for another state is often reviewed closely, especially in the year of the move and when there is a large gain or business sale soon after.
Moving out does not end California tax on California-source income. Income from a California business, rents from California property, and certain deferred compensation can remain taxable. We help clients document their move, prepare part-year returns, and plan nonresident filings for what stays in California.
Minimum Franchise Tax and the LLC Fee
Corporations, LLCs, limited partnerships, and limited liability partnerships that are organized, registered, or doing business in California generally owe an annual minimum franchise tax of $800, even if they have no profit. "Doing business" includes meeting thresholds for California sales, property, or payroll, so out-of-state companies can owe the tax without a California office.
LLCs also pay a separate LLC fee based on total income from California sources, in tiers. S corporations pay a reduced entity-level tax in addition to the owners' tax. Corporations pay franchise tax on net income, generally apportioned with a single sales factor and market-based sourcing for services.
We calculate estimated payments, track due dates for each entity, and keep entities in good standing so they are not suspended by the FTB.
The PTE Elective Tax
California's pass-through entity (PTE) elective tax lets qualified partnerships and S corporations pay state income tax at the entity level, with a credit for owners. Recent legislation extended the program for taxable years 2026 through 2030 and changed how prepayments work, with a reduced credit if payments are missed or short. Whether the election helps depends on the owners, their federal situation, and other credits, so we model it each year.
Sales and Use Tax With CDTFA
Businesses selling tangible goods in California need a seller's permit from CDTFA. The statewide base rate is increased by district taxes, so the rate depends on where the goods are delivered or sold. Most services are not taxable, but fabrication and some labor connected to goods can be. Out-of-state sellers above California's economic nexus threshold must register and collect.
Use tax is common for California businesses that buy equipment or supplies from out-of-state vendors. It can be reported on the sales and use tax return or, for some businesses, on the income tax return. We reconcile sales tax reports to the books, track district rates, and support audits with organized records.
Payroll With EDD
California employers report to EDD for:
- Unemployment insurance and the Employment Training Tax, paid by employers
- State Disability Insurance, withheld from employee wages
- California personal income tax withholding
California employment law adds paid sick leave, detailed wage statement rules, and local minimum wages in many cities. Getting worker classification right is especially important in California. We run payroll, file the quarterly combined reports, and reconcile payroll to the general ledger and year-end forms.
Local Business Taxes
Many California cities impose their own business license taxes, often based on gross receipts, headcount, or payroll. Some large cities have taxes with their own registration and returns. We identify which local taxes apply and add them to your filing calendar.
Industries We Work With in California
- Technology and startups: equity compensation, research credit coordination, multistate apportionment, and conformity adjustments
- Entertainment and media: project accounting, residuals and royalties, and nonresident withholding for performers
- Agriculture and food: inventory, farm-specific sales tax exemptions, and seasonal payroll
- Real estate: depreciation differences between federal and California, LLC fees, and property-holding entities
- Professional services: owner compensation, the PTE election, and local business taxes
Bookkeeping for California Requirements
California filings depend on numbers that federal-only books may not track: California-source receipts for the LLC fee and apportionment, sales by district for CDTFA, and state-specific depreciation. We set up the chart of accounts and monthly close so these figures are available when returns are prepared.
Getting Started With BOMCAS in California
Many California clients come to us after an FTB notice, a CDTFA audit letter, or a planned move out of state. Others want help deciding on the PTE elective tax before the payment dates. Contact BOMCAS to set up a remote review of your California filings. California city and service pages will be added under this section. Return to the BOMCAS home page or our U.S. services at any time. This page is a general overview and is not a determination for your situation.
Talk to BOMCAS About Your California Taxes
Have a question about your California filings, payroll or bookkeeping? Contact BOMCAS or use the contact form below, and we will get back to you as soon as possible. You can also browse all United States services.