Comparing Nevada Taxes vs. California Taxes

The decision to relocate is often driven by financial implications. For those in the American West, the contrast between California and its neighbor, Nevada, presents a case study in how differing state fiscal policies can impact both personal and business finances. The states’ close proximity and opposing approaches to taxation make this a common comparison for individuals and companies considering a move.

Comparing Personal Taxes

California employs a progressive tax system, meaning the rate at which income is taxed increases as an individual’s income rises. For the 2025 tax year, California has nine tax brackets with rates that range from 1% to 12.3%. An additional 1% mental health services tax is levied on taxable income over $1 million, bringing the top marginal rate to 13.3%. In contrast, Nevada is one of the few states that does not impose any state individual income tax on any form of personal earnings.

California’s statewide base sales tax rate is 7.25%. Local jurisdictions, however, can add their own district sales taxes, which can push the combined rate in metropolitan areas like Los Angeles County to 9.5% or higher. Nevada’s statewide sales tax rate is lower at 6.85%. Similar to California, local governments in Nevada can add taxes, bringing the total combined rate in areas like Clark County to 8.375%. Both states exempt certain necessities, such as most unprepared food items and prescription medicines, from sales tax.

California’s system is governed by Proposition 13, which sets the property tax rate at 1% of the property’s assessed value at the time of purchase. This “acquisition value” can then only increase by a maximum of 2% annually, regardless of how much the property’s market value grows. This creates a system where long-time homeowners may pay substantially less in property tax than new buyers of similarly valued homes.

Nevada assesses property based on its current market value but provides a partial tax abatement that caps the annual increase in a homeowner’s property tax bill for their primary residence at 3%. For other properties, the cap on the tax bill increase is a maximum of 8%. This results in an average effective property tax rate in Nevada of around 0.50% of a home’s value, while California’s is approximately 0.73%.

Comparing Business Taxes

California imposes a flat corporate income tax of 8.84% on the net income of most C corporations. This tax applies to any business that is incorporated, registered, or doing business in the state. Nevada does not levy a corporate income tax, which also benefits owners of pass-through entities who are not subject to personal income tax on business profits.

California requires most business entities, including LLCs and corporations, to pay an annual minimum franchise tax of $800, regardless of revenue. This fee may be waived for the first year of a newly incorporated business. Nevada does not have a franchise tax but instead imposes a Commerce Tax on businesses with annual gross revenues over $4 million. The Commerce Tax is a gross receipts tax with rates that vary by industry, ranging from 0.051% to 0.331%.

Both states fund a State Unemployment Tax Act (SUTA) system with employer payroll taxes. In California, the taxable wage base is $7,000 per employee, and the 2025 SUTA tax rate for new employers is 3.4%, with rates for established businesses from 1.5% to 6.2%. Nevada has a higher taxable wage base at $41,800 for 2025, and the new employer rate is 2.95% plus a 0.05% Career Enhancement Program tax, with other rates from 0.25% to 5.4%.

Other Notable Tax Differences

Neither California nor Nevada imposes a state-level estate tax or an inheritance tax. This means assets can be passed to heirs without being subject to taxation by either state government, though federal estate taxes may still apply depending on the estate’s size.

The per-gallon state excise tax on gasoline is higher in California. As of mid-2025, California’s gasoline excise tax is $0.596 per gallon. Nevada’s state excise tax on gasoline is lower, at $0.23 per gallon.

California imposes a cigarette excise tax of $2.87 per pack, while Nevada’s is $1.80 per pack. For other tobacco products, California calculates an equivalent tax rate based on the wholesale cost. When it comes to alcohol, California’s excise tax on distilled spirits is $3.30 per gallon, while Nevada’s is higher at $3.60 per gallon.

Information Required to Establish Nevada Domicile

The California Franchise Tax Board (FTB) rigorously examines residency status. To establish domicile in Nevada for tax purposes, a person must provide evidence of their intent to make Nevada their permanent home by severing ties with California and creating new connections in Nevada.

Primary evidence involves official government documentation. Actions that create a public record of the change in residency include:

• Obtaining a Nevada driver’s license and surrendering a California one
• Registering all personal vehicles in Nevada
• Registering to vote in Nevada
• Filing a Declaration of Domicile with a Nevada county clerk’s office

The FTB also scrutinizes secondary evidence to determine where a person has their closest connections. It is advisable to:

• Open primary bank accounts with Nevada institutions
• Update the address on federal tax returns and credit card statements
• Find new doctors, dentists, lawyers, and accountants in Nevada

The FTB applies a “closest connections test,” weighing all factors to determine an individual’s true home. Other connections include the location of one’s spouse and children, where children attend school, and the address used for social and professional memberships. Maintaining a home in California while claiming Nevada residency requires ensuring the Nevada home is the principal residence.

California’s Taxation of Former Residents

Establishing domicile in Nevada does not completely sever all tax obligations to California. The state retains the authority to tax certain types of income that originate within its borders, known as “California-source income,” regardless of where the recipient lives.

Common examples of taxable California-source income for a Nevada resident include net rental income from a California property and wages earned for work physically performed in California. Income from a business partnership or S corporation that operates in California is also subject to state tax.

For the tax year of the move, an individual is a part-year resident of California and must file a California Nonresident or Part-Year Resident Income Tax Return (Form 540NR). On this return, the individual reports all worldwide income received while a California resident. For the period after the move, they report and pay tax only on income from California sources.