California Corporation Taxes: What Your Business Needs to Pay
Corporations in California pay an 8.84% income tax, an $800 minimum franchise tax, and state income tax on owner earnings. Learn what C Corps and S Corps owe and when payments are due.
Bizee Editorial Staff
Editorial Team
California corporation tax at a glance
Filing fee: $100 (Articles of Incorporation, California Secretary of State)
Processing time: Varies; standard processing available online
State agency: California Franchise Tax Board (FTB) for taxes; California Secretary of State for formation
Annual report due: Statement of Information due within 90 days of incorporation, then every year by the last day of the anniversary month
State tax rate: C Corp: 8.84% corporate income tax + $800 minimum franchise tax. S Corp: 1.5% franchise tax on net income + $800 minimum franchise tax.
California corporation tax overview
California corporations pay several taxes: an $800 minimum franchise tax every year, a corporate income tax of 8.84% on net income (for C Corps), a 1.5% franchise tax on net income (for S Corps), California state income tax on any earnings owners take out, and federal taxes on top of all of that. The type of corporation you form determines which rates apply.
California is one of the more tax-heavy states for corporations, and the $800 minimum franchise tax catches a lot of new business owners off guard — it's due even if your corporation earns nothing in its first year.
$800 minimum franchise tax — applies to all California corporations, every year
8.84% corporate income tax on net income — C Corps only
1.5% franchise tax on net income — S Corps only (minimum $800)
California personal income tax — on any salary or distributions owners receive
Federal corporate income tax — 21% flat rate for C Corps; pass-through for S Corps
Sales and use tax — if you sell taxable goods or services in California
Payroll taxes — if you have employees
California franchise tax
Every California corporation — C Corp or S Corp — owes a minimum $800 franchise tax each year, regardless of income. This is the California Franchise Tax Board's charge for the privilege of being incorporated or doing business in the state. You owe it even if your corporation had zero revenue.
The $800 is a floor, not a cap. If your corporation's income-based tax calculation comes out higher than $800, you pay the higher amount. The $800 is simply the minimum you owe no matter what.
Out-of-state corporations doing business in California owe the same franchise tax as domestic corporations. If your business is actively earning revenue in California, the $800 minimum applies.
California corporate income tax (C Corps)
C Corps in California pay an 8.84% corporate income tax on net income apportioned to California. This is separate from — and in addition to — the $800 minimum franchise tax. California uses a single sales factor apportionment formula to figure out how much of your corporation's income is taxable in the state.
C Corps file Form 100 with the California Franchise Tax Board to report and pay this tax. The return is due on the 15th day of the 4th month after the close of your taxable year — for calendar-year corporations, that's April 15.
California S Corp tax rate
S Corps in California don't pay the 8.84% corporate income tax. Instead, they pay a 1.5% franchise tax on net income, with a minimum of $800. Income passes through to shareholders, who then report it on their personal California tax returns and pay state income tax at their individual rate.
The 1.5% rate is lower than the C Corp rate, but the $800 minimum still applies. S Corps file Form 100S with the California Franchise Tax Board. A tax professional can help you figure out whether electing S Corp status makes sense for your situation.
California state income tax on owner earnings
Anyone who takes earnings out of a California corporation — as salary, wages, or distributions — owes California personal income tax on those earnings. California's personal income tax rates run from 1% to 13.3%, depending on income level. This applies to owners, officers, and employees living in California.
For S Corp shareholders, the corporation's income passes through to personal returns even if no distribution is taken. That means you can owe California income tax on profits you haven't actually received as cash. A tax professional can help you plan for this.
California sales and use tax
If your corporation sells physical products or certain taxable services in California, you'll need to collect and remit California sales and use tax. The statewide base rate is 7.25%, but local district taxes can push the total rate higher depending on where your business operates.
You register for a seller's permit through the California Department of Tax and Fee Administration (CDTFA). Not every business needs one — if you only sell exempt goods or services, you may not have a sales tax obligation. Check with a tax professional if you're not sure whether your products or services are taxable.
Federal taxes for California corporations
California corporations also owe federal taxes. C Corps pay a flat 21% federal corporate income tax on net income. S Corps don't pay federal corporate income tax at the entity level — income passes through to shareholders, who report it on their personal federal returns.
C Corp owners who also work in the business pay federal income tax on their salary as employees. S Corp shareholders who work in the business must pay themselves a reasonable salary and pay payroll taxes on it — the IRS watches this closely. A tax professional can help you figure out the right salary amount.
Employer and payroll taxes
If your corporation has employees — including yourself as an S Corp owner-employee — you'll owe payroll taxes. These include federal Social Security and Medicare taxes (FICA), federal unemployment tax (FUTA), California state payroll taxes, and California unemployment insurance (UI).
California employers also withhold state income tax from employee wages and remit it to the Franchise Tax Board. Payroll tax requirements add up fast, and getting them wrong can mean back taxes and penalties. Most corporations use payroll software or a payroll service to stay on track.
Estimated tax payments and due dates
California corporations generally need to make estimated tax payments throughout the year rather than paying everything at once when the return is due. For the California franchise tax, corporations pay in 4 installments: 30% due by the 15th day of the 4th month, 40% by the 6th month, 0% by the 9th month, and 30% by the 12th month of the taxable year.
Federal estimated tax payments follow a different schedule — generally quarterly, on April 15, June 15, September 15, and January 15. If your corporation doesn't pay enough during the year, you can owe penalties and interest on the underpayment. A tax professional can help you set up a payment schedule that keeps you in good standing with both the FTB and the IRS.
FAQ
It's the California minimum franchise tax. Every corporation incorporated in California or doing business in the state owes at least $800 per year to the California Franchise Tax Board, regardless of income or profit. It's the state's charge for the privilege of operating as a corporation in California. If your income-based tax calculation exceeds $800, you pay the higher amount — the $800 is the floor.
Generally, yes. California S Corps owe the $800 minimum franchise tax starting with their first taxable year. There is a first-year exemption for newly incorporated California corporations in some situations, but it's narrow and doesn't apply to all entities. Talk to a tax professional to figure out whether your S Corp qualifies for any first-year relief.
California S Corps pay a 1.5% franchise tax on net income, with a minimum of $800. They don't pay the 8.84% corporate income tax that C Corps owe. Income passes through to shareholders, who pay California personal income tax on their share at their individual rate — which can reach 13.3% at the top bracket.
C Corps in California pay an 8.84% corporate income tax on net income apportioned to California, plus the $800 minimum franchise tax. The two charges are separate — you owe both. California uses a single sales factor formula to figure out how much of your income is apportioned to the state.
It depends on the type. A C Corp pays its own federal and California income taxes at the entity level — the corporation files its own return and pays its own tax bill. An S Corp doesn't pay federal income tax at the entity level. Instead, income passes through to shareholders, who report it on their personal returns. California S Corps do pay the 1.5% franchise tax at the entity level, with a minimum of $800.
It depends on the entity type. A California C Corp pays an 8.84% corporate income tax on net income plus the $800 minimum franchise tax. A California S Corp pays a 1.5% franchise tax on net income with a minimum of $800. Both types also owe federal taxes, and owners pay California personal income tax on any earnings they take out. Sales tax applies if you sell taxable goods or services.
Yes. California corporations generally need to make estimated franchise tax payments in installments throughout the year: 30% by the 4th month, 40% by the 6th month, and 30% by the 12th month of the taxable year. Federal estimated payments follow a quarterly schedule. If you underpay, you can owe penalties and interest on the shortfall. A tax professional can help you set up a payment plan.
It depends on what you sell. If your corporation sells physical products or certain taxable services in California, you'll need to collect and remit sales tax. The statewide base rate is 7.25%, but local district taxes can push the total higher. You register for a seller's permit through the California Department of Tax and Fee Administration. If you only sell exempt goods or services, you may not have a sales tax obligation.
