California Fee and Tax Obligations: What You Need to Know

California imposes a range of taxes and fees on individuals and businesses, making it crucial to understand your obligations. Failing to comply can result in penalties, interest charges, or legal action. Whether you’re a resident, business owner, or consumer, knowing what you owe helps avoid unexpected costs.

Beyond income taxes, additional levies apply to purchases, business operations, and local government requirements. Keeping track of due dates is just as important as understanding the amounts owed.

Income-Based Taxes

California’s income tax system is progressive, with rates ranging from 1% to 13.3%. The highest rate applies to taxable income over $1 million and includes a 1% mental health services surcharge under Proposition 63. Unlike federal tax brackets, which adjust for inflation, California’s remain fixed unless changed by law.

For businesses, tax obligations vary by entity type. C corporations pay a flat 8.84% corporate income tax, while S corporations are taxed at 1.5% of net income, with a minimum payment of $800 regardless of profitability. Limited liability companies (LLCs) pay an annual fee based on gross receipts in addition to the $800 franchise tax. Partnerships and sole proprietorships report income on personal tax returns rather than paying an entity-level tax.

Deductions and credits can reduce tax liability. The California Earned Income Tax Credit (CalEITC) benefits low-income workers, while the Research & Development Tax Credit helps businesses offset innovation costs. Homeowners may qualify for the Mortgage Interest Deduction, though state rules differ from federal guidelines.

Sales and Use Levies

California imposes a statewide sales tax on most retail transactions, with a base rate of 7.25%. This includes a 6% state tax, a 1.25% local revenue component, and additional district taxes that vary by location. Many cities and counties impose voter-approved district taxes, pushing rates as high as 10.75% in areas like Los Angeles and Alameda County. Businesses selling taxable goods must collect and remit these amounts to the California Department of Tax and Fee Administration (CDTFA).

Not all purchases are taxable. Groceries, prescription medications, and certain medical devices are exempt, while prepared food, alcohol, and digital goods generally remain taxable. Some industries qualify for partial exemptions, such as manufacturing equipment purchases, which may receive a reduced rate under the partial sales tax exemption for manufacturing and R&D equipment. Buyers should verify whether their purchases qualify to avoid overpaying.

When retailers fail to collect sales tax, consumers may still owe use tax. This applies to out-of-state or online purchases where the seller does not charge California tax. Individuals and businesses must self-report use tax on their state income tax return or file separately with the CDTFA. Failure to do so can result in a 10% penalty on the unpaid tax, plus monthly interest.

Business Filing Charges

Starting and maintaining a business in California involves various filing costs. Registering a corporation or LLC with the California Secretary of State requires an initial fee—$100 for corporations and $70 for LLCs. Businesses must also submit a Statement of Information within 90 days of formation and then biennially for LLCs or annually for corporations, with a filing fee of $25 for corporations and $20 for LLCs.

Most business entities, including LLCs, limited partnerships (LPs), and limited liability partnerships (LLPs), must pay an annual franchise tax of at least $800, due by the 15th day of the fourth month after formation and each subsequent year. Nonprofit corporations are generally exempt if they maintain tax-exempt status with the California Franchise Tax Board (FTB).

Foreign entities—those formed outside California but conducting business within the state—must register as a foreign corporation or LLC, incurring a $100 registration fee along with the same annual franchise tax obligations. If a business fails to register but operates in the state, the FTB can impose back taxes, penalties, and interest.

Local Municipality Fees

Businesses and property owners must also account for fees imposed by cities and counties, which vary based on location, industry, and property use. These charges often fund local infrastructure, public services, and regulatory oversight.

One common local fee is the business license tax, which municipalities require for legal operation. Unlike the state’s franchise tax, these fees are set at the city or county level and may be based on gross receipts, number of employees, or a flat rate. For example, Los Angeles charges businesses between $1.01 and $5.07 per $1,000 of gross receipts, depending on the industry. San Francisco applies a tiered structure with rates between 0.16% and 0.56% of taxable gross receipts, with some businesses, such as administrative offices, subject to a payroll expense tax instead.

Property owners face additional local assessments beyond standard property taxes. Special assessments, such as Mello-Roos taxes, fund infrastructure projects in designated districts, while impact fees cover costs associated with new developments. In cities like San Diego, developers must pay impact fees for transportation, parks, and affordable housing, which can total tens of thousands of dollars per unit.

Payment Schedules

Meeting tax and fee deadlines requires careful planning. Missing a due date can result in penalties, interest, or business suspension.

For individual income taxes, the Franchise Tax Board (FTB) follows the same estimated tax payment schedule as the IRS. Taxpayers who expect to owe more than $500 ($250 for married filing separately) must make quarterly estimated payments on April 15, June 15, September 15, and January 15 of the following year. Businesses with withholding obligations, such as payroll taxes, must remit payments to the Employment Development Department (EDD) on a semi-weekly, monthly, or quarterly basis, depending on payroll size. Sales tax payments, managed by the CDTFA, are generally due quarterly, though businesses with high sales volume may be required to file monthly or prepay twice a month.

Property tax bills, issued by county assessors, follow a two-installment system. The first half is due by November 1 and becomes delinquent after December 10, while the second half is due by February 1 and considered late after April 10. Business entities must also adhere to their annual franchise tax deadlines, with the $800 minimum tax due by the 15th day of the fourth month after formation and each subsequent year. Late payments can trigger a 5% late fee plus 0.5% per month in interest for unpaid income taxes.

Noncompliance Consequences

Failing to meet California’s tax and fee obligations can lead to financial penalties, legal action, and business suspension. The state enforces compliance through audits, liens, and wage garnishments.

For individuals, unpaid income taxes accrue interest based on the federal short-term rate plus 3%. If a taxpayer fails to file a return, the FTB can assess a penalty of 25% of the unpaid tax. Businesses that neglect to pay sales tax face a 10% penalty on the unpaid balance, with additional interest compounding monthly. The CDTFA can also revoke seller’s permits for persistent noncompliance.

Entities that fail to pay the annual franchise tax risk suspension by the Secretary of State, preventing them from legally conducting business, entering contracts, or defending lawsuits. Reinstatement requires payment of all outstanding balances, plus a $250 revival fee. In severe cases, the FTB may refer delinquent accounts to the California Attorney General’s Office for further enforcement, including asset seizures or criminal charges for tax evasion.