What Local Taxes Does California Have?

While California state law prohibits cities and counties from imposing a local personal income tax, a wide array of other local taxes are permitted across the state. These taxes are a source of revenue for local governments, funding public services and infrastructure. Residents and businesses encounter these taxes as additions to sales receipts, annual property tax bills, and specific industry levies. The absence of a local income tax shifts the focus to other forms of revenue generation.

Local Sales and Use Taxes

California has a uniform statewide sales tax rate, but local jurisdictions like cities and counties can levy additional, voter-approved taxes. These additions, known as district taxes, fund specific local needs like transportation projects or public safety. The combined rate, including the state and district portions, is what consumers see on their receipts.

The California Department of Tax and Fee Administration (CDTFA) administers these taxes, which means the sales tax paid can vary significantly from one city to another. For example, one city might have a higher combined rate to fund a new transit system while a neighboring city does not. This system allows communities to fund projects with direct resident support.

The use tax component applies to purchases made from out-of-state retailers for use in California where no state sales tax was collected. This ensures local jurisdictions do not lose revenue from online purchases and that local businesses are not at a competitive disadvantage. While consumers are sometimes responsible for remitting use tax, many large online retailers now collect it on behalf of their customers.

Local Property Taxes

The foundation of California’s property tax system is Proposition 13, which established a base property tax rate of 1% of a property’s assessed value. This assessed value is the purchase price and can only increase by a maximum of 2% per year until the property is sold. The total tax rate paid by a property owner is almost always higher due to additional local levies for specific purposes.

A significant portion of these additions comes from voter-approved general obligation bonds. When a local community votes to fund a large project, like building a new school, they issue bonds. The debt service on these bonds is paid for by an additional charge on the property tax bills of residents within that district’s boundaries.

Another common addition is special assessments, such as those under the Mello-Roos Community Facilities Act. Mello-Roos districts are often established in newer developments to finance the initial construction of public infrastructure like streets, sewers, and schools. Homeowners within a Mello-Roos district pay an additional special tax for a set number of years to cover these costs.

Business and Employment Taxes

Many California cities impose a local business tax, which functions as a license to operate within the city’s jurisdiction. This is structured as a tax on a company’s gross receipts, not its profit. The specific rate and calculation method can vary widely, with some cities using a tiered system based on receipts, a flat fee, or a calculation based on the number of employees.

The revenue generated is often directed into the city’s general fund to pay for services like road maintenance and public safety. Businesses must register with the city’s finance department and remit these taxes on an annual basis.

Some cities also levy local payroll taxes, which are paid by the employer, not the employee. These are calculated based on the employer’s total payroll expense within the city. For example, San Francisco has a Gross Receipts Tax and a Payroll Expense Tax that work in conjunction to fund municipal services.

Other Common Local Taxes

A prevalent example of a targeted tax is the Utility User Tax (UUT), which is a percentage-based tax levied on the consumption of utility services. This tax can apply to services such as electricity, natural gas, water, and telecommunications. It appears as a separate line item on a resident’s or business’s monthly utility bills, with rates set by the local city council.

Another widely used local tax is the Transient Occupancy Tax (TOT), or hotel tax. This tax is charged to individuals staying in hotels, motels, and vacation rentals for 30 days or less. The tax is calculated as a percentage of the room rate and is collected by the lodging operator, who then remits it to the city or county.