California offers a vibrant environment for business, with over 4.1 million small businesses employing almost half of the state’s workforce. Whether you’re an established business owner or planning to start a new venture, understanding the tax landscape in California is crucial. This guide provides an overview of the various taxes small businesses in California must navigate, including tax rates, filing requirements, and deadlines.
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Types of Business Taxes in California
Business owners in California may be subject to various taxes depending on their business structure, activities, and revenue. Here’s a breakdown of the main types of taxes:
- Corporate Income Tax
- S Corporation Tax
- LLC Annual Tax
- Applicable Entities: LLCs
- Tax Rate: $800
- Filing Requirements: File Form FTB 3522 by the 15th day of the fourth month of the tax year.
- LLC Fee
- Applicable Entities: LLCs that will make more than $250,000 in a tax year
- Tax Rate: Flat fee based on total California income
- Filing Requirements: File Form FTB 3536 by the 15th day of the sixth month of the current tax year.
- Pass-Through Entity (PTE) Tax
- Applicable Entities: Entities taxed as S corporations or partnerships
- Tax Rate: 9.3% of qualified net income (the sum of the pro rata or distributive share and guaranteed payments of each qualified taxpayer’s income subject to California personal income tax)
- Filing Requirements: File the first payment on or before June 15th during the tax year of the election and the second payment on or before the due date of the original return without regard to extensions. Use Form FTB 3893.
- Alternative Minimum Tax
- Applicable Entities: C corps and LLCs with C corp elections that don’t report a net income
- Tax Rate: 6.65%
- Filing Requirements: File Schedule P (100) with Form 100 by the 15th day of the fourth month after the tax year ends.
- Franchise Tax
- Applicable Entities: C corps, S corps, LLCs, limited partnerships (LPs), and limited liability partnerships (LLPs)
- Tax Rate for C Corps, LLCs with C Corp elections, LPs, and LLPs: $800
- Tax Rate for S Corps: 1.5% of net income or the minimum of $800, whichever is larger
- Tax Rate for LLCs: Minimum $800, up to $11,790 based on income
- Filing Requirements: C corps and LLCs must file by the 15th day of the fourth month after the close of the tax year. S corps, LPs, and LLPs must file by the 15th day of the third month after the close of their tax year.
- Sales and Use Tax
- Applicable Activities: Retail sales of tangible personal property
- Tax Rate: The statewide rate is 7.25% (local rates may vary)
- Filing Requirements: File Form CDTFA-401-A monthly, quarterly, or annually based on sales volume.
- Withholding Tax
- Applicable Entities: Employers with employees
- Tax Rate: Varies based on Employee’s Withholding Allowance Certificate (Form DE 4)
- Filing Requirements: File quarterly returns (Form DE 9 and Form DE 9C) by January 1, April 1, July 1, and October 1. More frequent deposits are required when more than $350 in personal income tax is withheld.
- Unemployment Insurance Tax
- Applicable Entities: Employers with employees
- Tax Rate: Varies based on business’s experience rating
- Wage Base: First $7,000 per employee per year
- Filing Requirements: File quarterly returns (Form DE 9 and Form DE 9C) by January 1, April 1, July 1, and October 1.
- Employment Training Tax
- Applicable Entities: Employers with employees
- Tax Rate: 0.01%
- Wage Base: First $7,000 per employee per year
- Filing Requirements: File quarterly returns (Form DE 9 and Form DE 9C ) by January 1, April 1, July 1, and October 1.
- Business Personal Property Tax
- Applicable Entities: Businesses using personal property
- Tax Rate: 1% of value
- Filing Requirements: If notified, file the Business Property Statement by the specified date.
- Nonresident Withholding Tax
- Applicable Entities: Pass-through entities with nonresident members
- Tax Rate: 7% of the gross payment or distribution amount that’s more than $1,500 in a calendar year
- Filing Requirements: File Form 592-Q quarterly by April 15, June 15, Sept. 15, and January 15.
How to File and Pay California Business Taxes
Business taxes in California can be filed and paid through various methods.
- Online Filing and Payment: Pay online with Web Pay or pay by credit card.
- Mail: Send forms and payments to:
Franchise Tax Board
PO Box 942857
Sacramento CA 94257-0631
Important Deadlines
Keep track of these key dates to avoid penalties:
- Corporate Income Tax Returns: Due by the 15th day of the fourth month after the tax year ends
- Estimated Tax Payments: Due quarterly on the 15th day of the fourth, sixth, ninth, and 12th month of the tax year
- Sales and Use Tax Returns: Monthly, quarterly, or annual filing based on sales volume
- Withholding Tax Returns: Due quarterly by January 1, April 1, July 1, and October 1
- Unemployment Insurance Reports: Due quarterly by January 1, April 1, July 1, and October 1
- Franchise Tax Returns: Due the 15th day of the fourth month after the tax year ends
- for C corps and LLCs. Due by the 15th day of the third month after the tax year ends for S corps, LPs, and LLPs
- AMT Returns: Due by the 15th day of the fourth month after the tax year ends
Tax Credits and Incentives
California offers several tax credits and incentives for small businesses, including:
- California Competes Tax Credit: This is available to businesses of any industry, size, or location that want to locate, stay, or grow in California. Applicants are evaluated based on 14 different factors, including number of full-time jobs being created, amount of investment, and strategic importance to the state or region.
- New Employment Tax Credit: This is available to companies that hire qualified full-time employees within designated geographic areas.
- Research and Development Tax Credit: This is available to businesses that paid for or incurred qualified research expenses while conducting qualified research activity in California. Qualified research expenses include wages, supplies, and contract research costs.
Check out our article on California tax incentives for more information.
California’s business tax breakdown by business type
Business taxes can get complicated, so below, we’ve included a chart that breaks down which taxes different business structures usually pay.
Keep in mind that pass-through entities don’t pay federal income taxes themselves—the obligation is passed on to their business owners or shareholders, who pay them through their personal income tax returns.
| Business type | Personal income tax | Corporate income tax | Franchise tax | PTE tax | Sales and use tax | Withholding tax | Unemployment tax | Federal income taxes |
| C corp | No | Yes | Yes | No | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes |
| S corp | Yes (pass-through), if not making the PTE election | Yes | Yes | Yes, if elect | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
| LLC | Yes (pass-through), if not making the PTE election | Yes, with C corp election | Yes | Yes, if treated as partnership and elect | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
| Partnership | Yes (pass-through), if not making the PTE election | No | Yes, if LP or LLP | Yes, if elect | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
| Sole proprietorship | Yes (pass-through) | No | No | No | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes, by way of individual income tax |
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California Small Business Taxes: The Employer’s 2023 Guide
California isn’t just home to two of the world’s biggest industries—tech in Silicon Valley and show business in Los Angeles—it’s also home to millions of eager entrepreneurs. According to 2022 data from the Small Business Administration’s Office of Advocacy, small businesses make up 99.8% of all California businesses. With 4.2 million small businesses across the state, California is the state with the largest number of small businesses.
However, California is also one of the states with the steepest business taxes. If you own a small business in California—or want to start one—it’s crucial to understand how small business taxes in California work.
Below, we break down the different types of business taxes imposed, the tax rates, and which ones apply to which business entities.
Which types of taxes do business owners pay in California?
In California, business owners pay different taxes according to business type. Depending on how you structure your operation, you could end up paying a California corporate tax, an alternative minimum tax (AMT), or a franchise tax.
California corporate taxes
California corporate tax, which is the tax on an organization’s profits, applies to C corporations and Limited Liability Companies (LLCs) that elect C corp status. The corporate tax rate in California is higher than the average corporate tax rate in the US. It’s a flat 8.84%, and applies to net taxable income from any business activity in the state.
California alternative minimum tax (AMT)
AMT is a tax imposed to ensure that a tax filer pays a certain amount in taxes—regardless of how many business tax deductions they take or tax credits they claim. The AMT in California is 6.65%.
Corporations that don’t report a net income profit—because they take advantage of a lot of business tax deductions, for example—have to pay AMT instead of the corporate tax. The same treatment goes for LLCs that operate as C corps and don’t report a net income.
California franchise taxes
Franchise taxes don’t apply to franchise businesses specifically. Rather, franchise taxes are taxes certain businesses have to pay for the privilege of doing business in California. In California, the franchise tax applies to C corps, S corporations, LLCs, limited partnerships (LPs), and limited liability partnerships (LLPs).
The minimum franchise tax is $800, but the exact amount you pay depends on your business type. Here’s a breakdown:
- C corps: C corps have to pay the minimum franchise tax of $800.
- S corps: S corps have to pay a franchise tax of 1.5% of their net income or the minimum of $800, whichever is larger.
- LLCs: Every LLC has to pay a minimum of $800 in franchise taxes; however, the exact amount varies based on an LLC’s net income. If an LLC earns between $250,000 and $499,999, the franchise tax goes up to $900. If an LLC’s net income is between $500,000 and $999,999, they pay $2,500 in franchise taxes. For a net income between $1 million and $4,999,999, the franchise tax is $6,000. With a net income of $5 million or more, the franchise tax is $11,790.
- LLCs with C corp status: LLCs operating as C corps have to pay the minimum franchise tax of $800.
- LPs and LLPs: Because they’re considered LLCs, LPs and LLPs each pay the minimum franchise tax of $800 a year.
- General partnerships and sole proprietorships: These business types don’t pay franchise taxes.
California state income taxes
Sole proprietors, independent contractors, and people who earn income from pass-through entities like S corps and LLCs have to pay personal income taxes. The state income tax rate ranges from 1% to 12.3%, depending on your tax bracket and filing status.
Below are the 2022 tax rates for people who are single or married but filing separately. You can see the rest of the 2022 tax rates for joint filers and heads of households here.
Single or married filing separately
| Taxable income | Tax rate | Tax owed |
| $0-$10,099 | 1% | 1% of taxable income |
| $10,100-$23,942 | 2% | $100.99 + 2% of the amount over $10,099 |
| $23,943-$37,788 | 4% | $377.85 + 4% of the amount over $23,942 |
| $37,789-$52,455 | 6% | $931.69 + 6% of the amount over $37,788 |
| $52,456-$66,295 | 8% | $1,811.71 + 8% of the amount over $52,455 |
| $66,296-$338,639 | 9.3% | $2,918.91 + 9.3% of the amount over $66,295 |
| $338,640-$406,364 | 10.3% | $28,246.90 + 10.3% of the amount over $338,639 |
| $406,365-$677,275 | 11.3% | $35,222.58 + 11.3% of the amount over $406,364 |
| $677,276 or more | 12.3% | $65,835.52 + 12.3% of the amount over $677,275 |
Quarterly estimated taxes
You also have to pay quarterly estimated tax payments in California if you expect to owe the state at least $500 in taxes in a calendar year. Quarterly payments are due January 15, April 15, June 15, and September 15. Use Form 540-ES to file and pay your deposits.
California business tax breakdown
Navigating small business taxes in California can be confusing, so here’s a helpful chart that summarizes the different types of taxes outlined above.
| Business Type | Net income reported | Taxes owed |
| C corp | Yes | Corporate tax of 8.84% + $800 franchise tax |
| C corp | No | AMT of 6.65% + $800 franchise tax |
| S corp | Yes | 1.5% franchise tax |
| S corp | No | $800 franchise tax |
| LLC taxed as a C corp | Yes | Corporate tax of 8.84% + $800 franchise tax |
| LLC taxed as a C corp | No | AMT of 6.65% + $800 franchise tax |
| LLC | Yes | Franchise tax, varying amount depending on net income |
| LLC | No | $800 franchise tax |
| LP | Yes or no | $800 franchise tax |
| LLP | Yes or no | $800 franchise tax |
| General partnership | Yes or no | No taxes |
| Sole proprietorship | Yes or no | No Taxes |
Do you need workers’ compensation insurance as a California business owner? Find out here.
When do you pay your California small business taxes?
It’s important to pay your California small business taxes on time so you don’t receive any penalties. Here are the respective deadlines to note and forms to prepare:
C corps
C corps need to file their tax returns using the California Corporation Franchise or Income Tax Return (Form 100) on the 15th day of the fourth month after the end of your taxable year. If your taxable year ends in December, for example, your return is due April 15.
Your tax payment is also due on the 15th day of the fourth month after your tax year. If you have to make estimated quarterly payments, you can use the Corporation Estimated Tax (Form 100-ES). Estimated payments are due on the 15th days of the fourth, sixth, ninth, and 12th months after the beginning of your tax year.
S corps
S corps in California need to file the California S Corporation Franchise or Income Tax Return (Form 100S) and pay your total tax owed by the 15th day of the third month after the close of your taxable year.
LLCs
For the first year you’re registered as an LLC, you have until the 15th day of the fourth month from the date you file with the California Secretary of State to pay your first-year annual tax. After the first year, your tax payments will be due on the 15th day of the fourth month of your taxable year.
You can submit your tax payment along with the LLC Tax Voucher (FTB 3522).
LPs and LLPs
LPs and LLPs need to pay their franchise taxes by the 15th day of the third month after the close of their tax year.
General partnerships, sole proprietorships, and contractors
If you need to file state income taxes, you’ll file FTB Form 540, the California Resident Income Tax Return. The filing and payment deadline for your California state tax return is usually April 15. If that day falls on a weekend, the deadline gets moved to the following Monday.
Want to get prepared for tax time? It’s never too early to start. Check out our tax tips here.
How do you pay your California small business taxes?
There are a few different ways to pay your California small business taxes. You can use CalFile to file your tax return online and make payments. However, you can also pay online with Web Pay, pay by credit card, or pay by mail to the following address:
Mail
Franchise Tax Board
PO Box 942857
Sacramento CA 94257-0631
File your California small business taxes with Gusto
If you run your business from California and want help with taxes, Gusto can help. Using our streamlined small business payroll software makes it easier to run payroll, file taxes, and ensure compliance. Learn more about our integrated platform and pricing options.
