The California Revenue and Taxation Code is the state statute that sets the rules for every major tax Californians pay: personal income tax, corporate franchise and income tax, sales and use tax, property tax, and a long list of specialty excise taxes and fees. Three agencies do the enforcement work. The Franchise Tax Board (FTB) handles income and franchise taxes.1Justia. California Code RTC 19501-19533 – Powers and Duties of Franchise Tax Board The California Department of Tax and Fee Administration (CDTFA) handles sales, use, and most excise taxes. County assessors handle property taxes. Many of the dollar thresholds in the code adjust for inflation each year, so the number that mattered last filing season is rarely the number that matters this one.
Who Has to File a California Return
Residents, part-year residents, and nonresidents with California-sourced income all have filing obligations once their gross income clears the threshold for their status and age. For the 2026 tax year, a married couple filing jointly with both spouses under 65 must file if California gross income exceeds $45,887.2State of California Franchise Tax Board. Residents The FTB publishes the full chart of thresholds by filing status each year.
Individual returns are due April 15, matching the federal deadline. California grants an automatic six-month extension to October 15, but that only extends the paperwork. Any tax owed must still be paid by April 15 to avoid penalties and interest.3State of California Franchise Tax Board. Extension to File File late without an extension and the FTB charges 5% of the unpaid tax per month (or part of a month) the return is late, capped at 25%.4State of California Franchise Tax Board. Common Penalties and Fees
Businesses face their own rules. Corporations doing business in California file Form 100 and owe a minimum franchise tax of $800 a year regardless of profit. Newly incorporated or newly qualified corporations are not required to pay the minimum in their first taxable year, and corporations that did not conduct business in California during a tax year of 15 days or fewer are also exempt.5State of California Franchise Tax Board. Corporations
LLCs file Form 568 and owe an annual fee tied to California-source total income, on top of the $800 minimum:
- $250,000 to $499,999: $900
- $500,000 to $999,999: $2,500
- $1,000,000 to $4,999,999: $6,000
- $5,000,000 or more: $11,790
LLCs with less than $250,000 in California-source income owe nothing beyond the minimum franchise tax. The fee must be estimated and paid by the 15th day of the sixth month of the current tax year.6Franchise Tax Board. Limited Liability Company Sole proprietors report business income on their personal California return.
When California Can Tax Your Income
Residency drives everything. Residents owe California tax on all income, wherever earned. Part-year residents owe tax on everything received while a resident plus any California-sourced income from the nonresident portion of the year. Nonresidents owe tax only on California-sourced income.
California-sourced income for nonresidents includes services performed in California, rent from California real property, gains from selling California real estate, and income from a California business or profession. The sourcing rule for independent contractors and sole proprietors surprises people: California looks at where the customer receives the benefit of the service, not where the contractor sits.7State of California Franchise Tax Board. Part-Year Resident and Nonresident A freelancer in Oregon with a California client can owe California tax on that income.
The FTB audits residency changes aggressively, especially for high earners who claim they moved out of state. If you relocate, document the departure date, new home, voter registration, and driver’s license change carefully. Those records are what settles a dispute.
Key Deductions, Credits, and Points of Nonconformity
Individual filers choose between a standard deduction and itemizing. Itemizers can deduct expenses like mortgage interest and unreimbursed medical costs over 7.5% of adjusted gross income. One trap: California does not let you deduct California income taxes on your California return. That is separate from the federal $10,000 cap on state and local tax deductions. The California Earned Income Tax Credit (CalEITC) provides meaningful relief for low-income workers, especially combined with the federal EITC and the Young Child Tax Credit.
For businesses, several areas of California tax law diverge sharply from federal rules. California does not fully conform to federal bonus depreciation, and Section 179 expensing limits are lower than the IRS allows, so federal bonus depreciation claims usually trigger an adjustment on the California return. California also does not conform to the federal Qualified Business Income deduction under IRC Section 199A. S corporations, partnerships, and LLCs cannot claim the 20% QBI deduction on their California returns even though it reduces federal taxable income.
California offers its own credits, including the Research and Development Tax Credit for qualifying research expenditures in the state. The New Employment Credit was set to expire for tax years beginning on or after January 1, 2026.8Franchise Tax Board. 2021 Instructions for Form FTB 3554 New Employment Credit Booklet Check the FTB’s credits page to see whether it was extended before you plan to use it.
For tax years 2024 through 2026, California has suspended the net operating loss deduction. You can still calculate and carry over NOLs during the suspension, and the carryover period is extended by one year for each suspended year. Individual taxpayers with net business income or modified AGI under $1 million are exempt from the suspension, as are corporate taxpayers with less than $1 million in California-taxable income. Disaster loss carryovers are unaffected.9State of California Franchise Tax Board. Net Operating Loss
Nonprofits can obtain California tax-exempt status by filing Form 3500A with the FTB if they already hold a federal determination letter under IRC 501(c)(3) or certain other subsections. Organizations without a federal letter, or whose exemption was previously revoked, must file the longer Form 3500.10Franchise Tax Board. 2025 Instructions for Form FTB 3500A Exempt status covers corporate income tax but not sales and use tax, which requires a separate exemption. The Welfare Exemption can also eliminate property tax for property used exclusively for religious, charitable, scientific, or hospital purposes, but it requires an annual claim with the county assessor. Even exempt nonprofits owe tax on unrelated business income.
Sales and Use Tax
California’s statewide base sales tax rate of 7.25% is the highest of any state, and local add-ons push the combined rate higher in most jurisdictions. The CDTFA runs collection.
Out-of-state retailers must register and collect California sales tax once their sales into the state exceed $500,000 in the current or prior calendar year. The threshold counts marketplace sales, wholesale and resale transactions, and sales to nonprofits or government entities that would otherwise be exempt. Any physical presence in California — a warehouse, an office, employees — creates an immediate obligation to collect regardless of sales volume.
Use tax is the mirror image. It applies when you buy a taxable item from an out-of-state seller who did not collect California tax. Individuals can report use tax on their California income tax return using a worksheet or lookup table in the Form 540 instructions. Vehicles, vessels, and aircraft bought out of state cannot be reported this way and require separate filings with the CDTFA. A “qualified purchaser” with more than $10,000 in use-tax-eligible purchases per calendar year must register directly with the CDTFA and file annually.11California Department of Tax and Fee Administration. California Use Tax
Property Tax Under Propositions 13 and 19
Property tax operates inside the framework Proposition 13 built in 1978. The general levy is capped at 1% of assessed value, and annual increases in assessed value are capped at 2%. Reassessment to current market value only happens when the property changes ownership or undergoes new construction.12Los Angeles County Assessor. Proposition 13
Proposition 19 took effect February 16, 2021, and replaced the older parent-child and grandparent-grandchild transfer exclusions from Propositions 58 and 193. A parent-to-child transfer of a family home can still avoid full reassessment, but the child must use the property as their own principal residence. The exclusion is also capped: if the home’s current market value exceeds the parent’s taxable value by more than $1 million (adjusted biennially), the excess is added to the new assessed value.13California State Board of Equalization. Proposition 19 Information Under the previous rules there was no value cap and no requirement that the child live in the home.
Property owners who think their assessment is too high can appeal to their county’s Assessment Appeals Board. In most counties, the annual filing period runs July 2 through November 30. Supplemental assessments issued after a change in ownership or new construction have their own 60-day window from the date the supplemental notice is mailed.14San Mateo County Assessor-County Clerk-Recorder and Elections. Appeal an Assessment Missing a property tax payment deadline triggers a 10% penalty, and property delinquent for five years can be sold at a tax lien sale.
If You Disagree With an Assessment
The appeal path depends on which tax is in dispute.
Income Tax
If the FTB proposes an additional assessment, you receive a Notice of Proposed Assessment (NPA). You have 60 days from the NPA date to file a written protest.15State of California Franchise Tax Board. FTB 7275 Publication – Personal Income Tax Notice of Proposed Assessment Information Miss the deadline and the assessment becomes final, with the FTB billing the full amount plus penalties and interest.16State of California Franchise Tax Board. FTB 5821 Publication Protest Procedures If the FTB denies the protest and issues a Notice of Action, you have 30 days to appeal to the Office of Tax Appeals (OTA), an independent body that conducts hearings and issues binding decisions.17Legal Information Institute. California Code of Regulations Title 18 Section 30203 – Time for Submitting an Appeal An unfavorable OTA decision can be taken to California Superior Court.
Sales and Use Tax
Businesses that receive a Notice of Determination from the CDTFA must request reconsideration within 30 days. If the CDTFA denies reconsideration, the business can appeal to the OTA under the same 30-day timeline.18Office of Tax Appeals. Office of Tax Appeals Appeals Procedures Sales tax appeals sometimes include a prehearing conference where settlement is possible. Judicial review in Superior Court is the final step. Interest continues to accrue on the unpaid balance throughout the entire process.
If You Can’t Pay or Were Penalized
The FTB has broad collection tools. It can issue an Order to Withhold, directing banks or employers to turn over funds. The CDTFA can lien business assets. A recorded Notice of State Tax Lien creates a legal claim against your property, shows on your credit record, and complicates any sale or refinance. Wage garnishment for state tax debts can reach up to 25% of pay after required deductions like federal and state income tax, Social Security, and state disability insurance.19State of California Franchise Tax Board. How Much to Garnish From an Employee’s Pay A business that fails to remit collected sales tax risks losing its seller’s permit, and corporate officers who willfully fail to remit can be held personally liable for the unpaid amount.
If the debt is more than you can realistically pay, the FTB’s Offer in Compromise program allows settlement of income tax debt for less than the full balance. The program handles final, undisputed liabilities only, and the FTB evaluates ability to pay based on assets, income, expenses, and the chance circumstances will change.20Franchise Tax Board. Offer in Compromise Booklet for Individuals (FTB 4905 PIT) You must have filed all required returns and agree on the amount owed. Documentation requirements are heavy: six months of bank statements for every account, investment statements, real estate records, and income verification. Incomplete applications get rejected quickly.
If a penalty was assessed because of circumstances outside your control, the FTB may waive it for reasonable cause. Individuals use Form FTB 2917; business entities use Form FTB 2924.21Franchise Tax Board. Help With Penalties and Fees Common reasonable cause arguments include natural disasters, serious illness, reliance on a tax professional who made an error, and destruction of records. The FTB decides case by case, so documentation matters.
Taxpayers who cannot resolve problems through normal FTB channels, or who face irreparable harm from enforcement action, can contact the Taxpayers’ Rights Advocate. The Advocate can postpone enforcement during review and can abate penalties, fees, or interest attributable to an FTB error or delay, up to $10,000.22Franchise Tax Board. California Taxpayers’ Bill of Rights
When Noncompliance Becomes Criminal
California treats tax fraud as a criminal matter, not just a civil one. For sales and use tax, a code violation is a misdemeanor punishable by a fine of $1,000 to $5,000, up to one year in county jail, or both. Once the unreported tax liability reaches $25,000 or more in any 12-consecutive-month period, the offense becomes a felony carrying a fine of $5,000 to $20,000, imprisonment for 16 months, two years, or three years, or both.23California Department of Tax and Fee Administration. California Revenue and Taxation Code – Chapter 10 Violations Filing a fraudulent sales tax return is separately classified as a misdemeanor.24California Department of Tax and Fee Administration. California Revenue and Taxation Code 7152 – Criminal Penalties
Income tax evasion has its own penalties under the code. Willful attempts to evade or defeat the tax can bring felony prosecution with potential state prison time and substantial fines. Schemes involving federal elements, such as offshore accounts used to conceal income, can draw federal charges alongside state charges.