Taxes in Florida vs. California: A State Tax Comparison

The tax environments in Florida and California present a study in contrasts, influencing relocation decisions for individuals and businesses. Florida has cultivated a reputation for its low-tax structure, while California is known for having some of the highest rates in the nation. Understanding the practical differences between their tax systems is a component of financial planning, as the distinctions extend beyond simple rates and involve structural differences that can impact income, property ownership, and business activities.

State Income Tax

The clearest difference in the tax landscapes of Florida and California is their approach to personal income tax. Florida is one of nine states that does not levy any state income tax on its residents. This means wages, salaries, and investment profits are not subject to an additional layer of state taxation, which can increase take-home pay.

California, on the other hand, utilizes a progressive income tax system with some of the highest marginal rates in the United States. For the 2025 tax year, these rates begin at 1% on the lowest income levels and ascend to a top rate of 12.3% for the highest earners. Under this system, an individual’s income is taxed in portions, with only the income within a specific bracket being taxed at that bracket’s rate.

The impact is greatest for top earners. An individual with over $1 million in taxable income is subject to an additional 1% Mental Health Services Tax, pushing California’s highest possible marginal rate to 13.3%.

For investors, California taxes long-term capital gains at the same rate as ordinary income. This differs from the federal system, where long-term gains are taxed at lower, preferential rates.

Sales and Use Tax

Both Florida and California impose a statewide sales tax, but their base rates and local additions create different scenarios for consumers. California’s statewide base sales tax rate is 7.25%, while Florida’s statewide rate is lower at 6%. In both states, local governments add their own taxes to this base rate.

In California, counties, cities, and special districts can levy additional “district taxes.” This results in a wide variance across the state, with an average combined rate of approximately 8.85% and some urban areas like Los Angeles having combined rates around 9.5%.

Florida’s counties have the option to impose a “discretionary sales surtax” on top of the 6% state rate. These local taxes can range from 0.5% to 2.5%. In major metropolitan areas like Miami-Dade County, the combined rate is 7%, which is lower than the rates found in California’s largest cities.

Both states provide exemptions for certain necessities. Groceries intended for home consumption and prescription medications are common examples of exempt goods in both Florida and California. This exemption does not extend to items like prepared hot foods and restaurant meals, which remain taxable.

Property Tax

The property tax systems in California and Florida are different, creating distinct outcomes for homeowners. California’s system is based on the property’s acquisition value, a framework established by Proposition 13. This means the initial tax is calculated based on the home’s purchase price, with the base tax limited to 1% of that value, plus any additional amounts to fund local bonds.

A feature of Proposition 13 is its cap on annual increases in the assessed value for tax purposes. The assessed value can only rise by a maximum of 2% per year, or the rate of inflation, whichever is lower. This provides long-term homeowners with predictable tax bills that are disconnected from the property’s rising market value.

Florida assesses property taxes based on the property’s current market value, also known as “ad valorem” taxation. Each year, the county property appraiser determines the fair market value of a property, and this value is used to calculate the tax bill. To mitigate the impact of rising property values, Florida offers relief for primary residences. The Florida Homestead Exemption allows homeowners to reduce the assessed value of their primary residence by up to $50,000. Additionally, the “Save Our Homes” amendment caps the annual increase in the assessed value of a homesteaded property at 3% or the Consumer Price Index, whichever is less.

Consider a new homebuyer purchasing a $700,000 home in both states. In California, assuming an effective rate of 1.25% of the purchase price, the annual tax would be approximately $8,750. In Florida, with a higher average effective tax rate of around 1.7%, the initial tax bill on the same home, even after the homestead exemption, could be closer to $11,000.

The situation reverses for a long-term owner who purchased that same home 20 years ago for $200,000. In California, due to the 2% annual cap, the assessed value might have only grown to around $297,000, resulting in a tax bill of about $3,712. In Florida, the tax would be based on a much higher assessed value than the original purchase price, though the Save Our Homes cap would have limited annual increases.

Business Taxes

California imposes a flat corporate income tax rate of 8.84% on the net income of most corporations. This rate applies to traditional C-corporations doing business in the state.

Florida also has a corporate income tax, but its rate is lower at 5.5%. A feature of Florida’s system is a $50,000 exemption on corporate income. This means the first $50,000 of a corporation’s net income is not subject to the tax, providing relief for small and medium-sized businesses.

A distinction for entrepreneurs is California’s annual minimum franchise tax. Most business entities, including Limited Liability Companies (LLCs), S-corporations, and C-corporations, are required to pay a minimum franchise tax of $800 each year. This payment is due regardless of whether the business generates revenue or operates at a net loss.

Florida does not have an equivalent annual minimum tax. The absence of such a tax makes it less expensive to establish and maintain a business in Florida, especially during the initial phases.

Other Notable Tax Differences

Other differences in state-levied taxes affect the cost of living. One of the most significant is the tax on gasoline. California has one of the highest gasoline tax rates in the country, with state excise taxes and other fees adding to the per-gallon price.

Florida also taxes gasoline, but its rates are lower than California’s. This difference can lead to savings for individuals who drive frequently.

Vehicle registration fees are also higher in California. The state’s fee structure is more complex, incorporating factors like the vehicle’s value, age, and weight. In contrast, Florida’s registration fees are more straightforward and result in a lower annual cost for the average vehicle owner.

Neither Florida nor California currently levies a state-level estate tax, which is a tax on the transfer of property after death. Similarly, neither state imposes an inheritance tax, which is a tax paid by those who receive assets from an estate.