Anaya Nolan
California has a progressive personal income tax system with nine income tax rates, ranging from 1% to 12.3%. People who make above $1 million are subject to an additional 1% mental health services tax, making the highest marginal tax rate 13.3%. The state also has a 7.25% sales tax rate, with an average combined state and local sales tax rate of 8.85%. Additionally, California has a 0.68% effective property tax rate on owner-occupied housing value and a 68.1 cents per gallon gas tax. Understanding California's tax code and rates can be complex, as they vary based on income, filing status, and applicable brackets.
| Characteristics | Values |
|---|---|
| Income tax | 1% to 13.3% |
| Corporate income tax | 8.84% |
| Banks and financial institutions income tax | 10.84% |
| Sales tax | 7.25% |
| Average combined state and local sales tax rate | 8.85% |
| Use tax | Imposed on the storage, use, or other consumption of tangible personal property purchased from a retailer |
| Property tax | 0.68% of a home's assessed value |
| Annual increase in property tax | Restricted to an inflation factor, not to exceed 2% |
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![California Revenue and Taxation Code Part I [2025 Edition]](https://m.media-amazon.com/images/I/51yNUB-p4EL._AC_UY218_.jpg)
What You'll Learn
Sales tax on goods and services
California has the highest minimum sales tax rate in the United States at 7.25%. This rate applies to the sale of tangible goods, and most retail sales of goods and merchandise. Services are not subject to sales tax, though some politicians are campaigning for this to change.
The sales tax rate in California varies depending on the district in which you are purchasing an item or service. Local jurisdictions can add district taxes, which can increase the tax owed by a seller. These district tax rates range from 0.10% to 2.00%, and some areas may have more than one district tax in effect. The average combined state and local sales tax rate is 8.85%, the eighth-highest in the country. In some cities, the sales tax can be as high as 10% or even 10.75%.
There are a number of exemptions to the sales tax in California. Groceries, diapers, soap, medical devices, and feminine hygiene products are all excluded from sales tax. Most food and grocery items are exempt, though carbonated drinks and prepared foods are not. There are also exemptions for certain types of organisations, such as government agencies, museums, and some non-profits. Certain thrift stores are also exempt, such as those operated by qualifying non-profit organisations.
Sales tax is required on all purchases of tangible personal property to its ultimate consumer. The liability for sales tax attaches to the seller, who is allowed by law to collect the tax from the buyer. Businesses with multiple locations in the state may attribute all online sales taxes to a single jurisdiction, and some offer revenue-sharing deals with cities that return a portion of the collected sales tax to the business.
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Income tax
California has nine income tax rates, ranging from 1% to 12.3%. The state has a progressive personal income tax system, meaning that the more you earn, the higher your tax rate. The tax rates and brackets depend on your filing status and level of taxable income. For example, for a single filer with a taxable income of $80,000, the first $10,412 would be taxed at 1%, the next $10,412 to $24,684 would be taxed at 2%California standard deduction for 2024 applies to tax returns filed in 2025. For single or married filing separately, the deduction is $5,540. For married filing jointly, surviving spouse, or head of household, the deduction is $11,080. California taxpayers must file their returns by April 15, with an automatic six-month extension available for those who need more time.
California has the nation's highest individual income tax rates and high sales tax burdens compared to the rest of the country. The state also has high income and sales taxes, with sales tax levied on all purchases of tangible personal property. However, groceries and some medical services are exempt from sales tax. California also has an additional 1% tax on income over $1 million, which results in a top income tax rate of 13.3%, the highest in the country.
Low-income workers in California who earn up to $31,950 annually may be eligible for the CalEITC, which can reduce state tax liability by up to $3,644. Additionally, taxpayers with children under six may qualify for the YCTC, providing up to $1,154 per tax return. Those who pay for childcare or dependent care may also be eligible for the Child and Dependent Care Credit, which can cover up to 50% of care expenses, up to a maximum of $3,000 for one child and $6,000 for two dependents.
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Property tax
In addition to the base rate of 1%, there are additional local taxes and assessments that can increase the total tax rate. For example, in Los Angeles County, the average property tax rate is approximately 1.16%, with 1% being the base tax of the property value, and the remaining 0.16% being local taxes. These local taxes are used to fund public services, and they vary by city and district. Voter-approved taxes for specific projects or purposes are common, as are “Mello-Roos” taxes, which are voted on by property owners and used to support special districts.
It is important to note that failing to pay property taxes can have serious consequences, including delinquent penalties, tax liens, and tax auctions. If you are a homeowner in California, it is crucial to understand the property tax system and stay up-to-date on your payments to avoid these penalties.
In recent years, there have been changes to the property tax laws in California, with the passage of Proposition 19 in 2020. This eliminated the exclusion that allowed children to inherit their parents' homes at the parents' property tax assessment. Now, if a house is passed on to children and its assessed value has increased significantly over the years, the children will incur a much higher tax bill. This new law has significant implications for families, especially those with high-value properties.
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Franchise tax
California imposes a franchise tax on corporations and other business entities for the right to exist or do business within the state. The California Franchise Tax Board fee is a tax payment that many businesses in California are required to pay. It is important for businesses to understand this fee and how to pay it to avoid penalties and legal issues. The Franchise Tax Board fee must be paid by all business entities that are doing business in California or have registered with the state to conduct business, regardless of where the business is headquartered or incorporated. This includes C corporations, S corporations, limited liability companies (LLCs), series LLCs, limited partnerships, limited liability partnerships, and limited liability limited partnerships.
Nonprofits can apply for an exemption from this tax by completing and submitting an Exemption Application (Form 3500) or a Submission of Exemption Request (Form 3500A). Sole proprietorships and general partnerships are not considered separate legal entities and are not required to pay the California Franchise Tax. Instead, the business income is reported on the owners' personal income tax returns.
The California Franchise Tax is a minimum $800 annual tax imposed on business entities registered with the state as well as out-of-state companies doing business in California. LLCs making more than $250,000 in a year are also subject to an additional LLC fee, which increases based on the LLC's income. For example, an LLC making between $250,000 and $499,999 will pay a $900 LLC fee, while an LLC making $5,000,000 or more will pay $11,790.
There are three conditions under which the minimum franchise tax is waived: the First-Year Exemption, the 15-Day Rule, and tax-exempt status. California waives the first-year minimum franchise tax for new corporations that qualify or incorporate with the Secretary of State on or after January 1, 2000. A corporation whose first taxable year is a period of 15 days or less has no filing requirement if it incorporates within the last 15 days of its tax year and conducts no business during that time. Entities may be granted tax-exempt status by the California Constitution or by the California Franchise Tax Board (FTB).
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Corporate income tax
California has a flat corporate income tax rate of 8.84%. This applies to C corporations and Limited Liability Companies (LLCs) that elect C corp status. Banks and financial institutions are taxed at a slightly higher rate of 10.84%.
C corps must 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 their taxable year. For example, if their taxable year ends in December, their return is due on April 15.
The minimum franchise tax is $800, but the exact amount paid depends on the business type. C corps must pay a minimum franchise tax of $800. S corps must pay a franchise tax of 1.5% of their net income or a minimum of $800, whichever is larger. Every LLC has to pay a minimum of $800 in franchise taxes, but 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.
Despite record profits, corporations pay a tiny fraction of their California expenses in taxes. On average, from 2017 to 2019, they paid just 0.11% of their expenses in taxes. Modest corporate tax increases could generate substantial revenue to boost income for families in poverty, fund crucial public services, and address economic inequality.
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Frequently asked questions
The sales tax rate in California is 7.25%. However, the addition of local sales taxes can increase this rate to 10% or more in some cities.
California has nine income tax rates, ranging from 1% to 12.3%. People who make above $1 million are subject to an additional 1% mental health services tax, making the highest marginal tax rate 13.3%.
California has a property tax rate of 0.68% of a home's assessed value.
Yes, unprepared food purchased in grocery stores, soap, medical devices, diapers, and feminine hygiene products are all excluded from sales tax.
State taxes in California are typically due by April 15. However, residents and businesses in certain areas affected by wildfires may have an extended deadline of October 15.
