California Business Tax Climate In 2024

California’s corporate tax system ranks 48th according to the Tax Foundation.

The Tax Index has 5 different components, and CA ranks poorly in most of them:

1. Individual Income Tax: CA top rate 13.3%, CA ranking 49th
   
   The individual income tax is important because many businesses (sole props, partnerships, and S-corps) report their income through the individual income tax code.
   
   
2. Corporate Tax: 8.84%, 45th
   
   Most states have corporate income taxes on profit (gross income minus expenses). However, some states impose taxes on the income of businesses with few or no deductions for expenses.
   
   
3. Sales Tax: 8.85%, 47th
   
   Sales tax is important to many businesses. It can hurt local businesses because as the sales tax climbs, customers make fewer purchases or seek low-tax alternatives. As a result, business is lost to lower-tax locations, causing lost profits, lost jobs, and lost tax revenue.
   
   
4. Property Tax: 2.83% (avg prop tax as % of income), 22nd
   
   States with lower property taxes better position themselves to attract business investment. The tax rate on commercial property is often higher than the tax on comparable residential property.
   
   
5. Unemployment Insurance Tax: 6.2% (on a taxable wage base of $7k), 30th
   
   One major problem of the UI tax system is that troubled businesses, who need layoffs to survive, actually pay higher UI tax rates. This is called the “shut-down effect” of UI taxes: failing businesses face climbing UI taxes, with the result that they fail sooner.​

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