California Tax Facts
California is a high-tax state, with some of the steepest sales tax, personal income tax and corporate tax rates in the nation.
In January 2017, the California Tax Foundation released "California Tax Facts: An Overview of the Golden State's Tax Structure." The report provides a comprehensive look at personal and business income taxes, sales and use taxes, property taxes, and other key sources of revenue.
For businesses seeking to create jobs for Californians by locating or expanding in the state, taxes can be a major obstacle. California has the third-worst state business tax climate in the nation, according to reports from the Tax Foundation, a national tax research organization that tracks state taxes.
Here is how California compares to other states in terms of major taxes, according to the Washington D.C.-based Tax Foundation's February 2017 report, "Facts & Figures: How Does Your State Compare?":
State Sales Tax: Highest in the Nation
California levies a 7.25 percent general sales and use tax on consumers, which is the highest statewide rate in the nation. Local governments are permitted to levy additional sales and use taxes, and the combined rate of the additional local taxes should not exceed 2 percent. However, some local governments have been given special dispensation to go above this cap. Click here for the State Board of Equalization's detailed description of the statewide sales and use tax rate, and here for information on additional city and county sales tax rates.
Gasoline Tax: Seventh Highest in the Nation
California's state taxes and fees on gasoline total 38.13 cents per gallon (effective January 1, 2017), the seventh highest in the nation, according to the American Petroleum Institute.
Personal Income Tax: Highest in the Nation
California's personal income tax has the highest top rate and one of the most highly progressive structures in the nation. After passage of Proposition 30, California's top rate is 13.3 percent (including the 1 percent surcharge for mental health programs, for all personal income taxpayers with taxable income over $1 million). Maine is second, with a top rate of 10.15 percent. Most small businesses are S Corporations, partnerships, or sole proprietorships, and pay their business taxes at the rates for individuals, which makes California's taxes on small businesses some of the most burdensome in the nation. Seven states do not impose a personal income tax.
Corporate Income Tax: Highest in the West
"Corporations looking to relocate, or even establish, a business in the West may shy away from California, as the state's 8.84 percent flat rate is the highest corporate tax rate in the West," the Tax Foundation said in 2011. Nothing has changed, as the group's 2017 State Business Tax Climate Index report shows that other Western states still have much lower corporate tax rates. Nationally, only seven states have a higher top corporate tax rate than California (Alaska, Connecticut, Iowa, Maine, Minnesota, New Jersey, and Pennsylvania).
Property Tax: High, Even Under Proposition 13
In its 2016 State Business Tax Climate Index, the Tax Foundation ranks the 50 states on property tax collections per capita. As of July 1, 2016, property taxes in California were $1,365 per capita, ranked 22nd highest nationally. Without Proposition 13, the 1978 voter-approved initiative that set limits on property taxes for California property owners, the state likely would rank even worse.
Many California property owners also are required to pay costly parcel taxes. These are annual property taxes (not based upon the value of the property) imposed by many school districts, special districts and other jurisdictions.