How To File Your California Business Tax

Business owners in California are subject to different tax obligations to operate legally at local, state, and federal levels. Navigating the process requires thorough knowledge of all the taxes regulated by the state and local agencies, which can be complex for both new and seasoned entrepreneurs.

In this guide, we’ll break down the complete process of registering and paying your California business tax and the requirements for each regulatory agency. We’ll also introduce Harbor Compliance, a reliable partner in assisting with your tax registration process.

What Is Business Tax in California?

Business taxes are legal obligations that apply to businesses operating within California. They are a crucial source of revenue for state and local governments. The funds collected through business taxes help support a wide range of public services, such as education, healthcare, public safety, and social services. Additionally, they’re used for maintaining and improving infrastructure, including roads, bridges, and public transportation.

Unlike individual income or sales taxes, California business taxes contribute to the local economy by funding programs that support economic development, small businesses, workforce training, and innovation. These taxes help finance initiatives, such as tax credits for job creation, small business development centers, workforce skill programs, and research and development incentives.

The tax structure and rates depend on factors like the size and type of business. For example, an LLC doesn’t need to pay any federal income tax—instead, each member of the entity is required to file federal and state taxes based on their individual earnings from the business. Meanwhile, a sole proprietor will be treated as an individual subject to income tax.

When Do Businesses Need to Register for Taxes?

Businesses need to register for a business tax in various stages of starting up their business, including:

• Establishing a new business
• Expanding operations to another state or country
• Hiring employees for the company
• Starting the sale of new products or services
• Acquiring a new property

Who Needs To Pay Business Tax in California?

The tax requirement in California depends on several factors, including the business structure, the nexus (or connection) the business has with the state, and the types of activities the business engages in.

Here’s a general overview of the types of businesses obligated to pay taxes in California:

• All corporations operating or earning income in California
• Any business with a physical presence, employees, or substantial sales in California
• Businesses selling tangible personal property in California
• LLCs with either corporation, partnership, or sole proprietorship structures
• Sole proprietors earning an income from their business
• Partners involved in a partnership structure

Agencies That Regulate Business Taxes in California

In California, you need to pay taxes at the state, federal, and local levels. The following are the four agencies that administer and assist you with tax reporting within the state and federation:

1. Internal Revenue Service (IRS) —The IRS issues Employer Identification Numbers (EINs) and manages federal payroll and income taxes, which include Social Security, Medicare, federal unemployment insurance, and federal income tax withholding.
2. Franchise Tax Board (FTB) —The FTB oversees personal and corporate income and franchise taxes for businesses operating in the state of California.
3. Employment Development Department (EDD) —The EDD regulates payroll taxes for a large range of sectors, including securities, franchises, and investment services.
4. California Department of Tax and Fee Administration (CDTFA) —The CDTFA oversees over 30 tax and fee programs critical for generating essential revenue for the state, including sales and use taxes.

To learn about other taxes applicable in your city or county, visit CalGold, a valuable resource for understanding California’s tax requirements.

Types of Business Taxes in California

The California business tax system is multi-faceted—each agency administers multiple tax programs to help businesses understand their tax obligations and direct them to the right source.

We’ve listed the different taxes each of these agencies administers and provided a detailed explanation of the tax requirements below:

Federal Income Tax

Federal income tax is a pay-as-you-go tax, which means individuals and businesses are expected to pay taxes on their income as they earn it.

For employees, federal income tax is usually collected through automatic withholding, where employers deduct the tax directly from their paychecks. However, if you're a business owner whose taxes aren't automatically withheld, you'll need to make estimated tax payments using Form 1040-ES, Estimated Tax for Individuals.

Federal Employment Tax

The federal law requires you to withhold, report, and remit specific deductions from your employees’ wages to the federal government. These deductions include:

• The federal income tax owed by employees
• Employees’ contributions to Social Security tax
• Employees’ contributions to Medicare

California State Income Tax

California state income tax is a tax imposed on the incomes of individuals and entities, such as:

• California residents meeting the income filing requirements
• Non-residents and part-year residents meeting the income filing requirements
• Businesses with a business income and profit, loss, and net profits to show

California State Employment Tax

The state mandates businesses to register with the EDD within 15 days of paying more than $100 in wages during a calendar quarter. For registration, you need to provide your EIN.

Then, the EDD will issue you a state employer payroll tax account number, which will be preprinted on all your EDD reports to identify your business.

The EDD administers the following taxes:

• Unemployment Insurance
• Employment Training Tax
• State Disability Insurance
• California Personal Income Tax

California State Sales and Use Tax

The CDTFA manages two types of taxes:

1. Sales and use taxes— The sales and use tax applies to the retail sales of physical goods and the items you use in your business.
2. Special taxes and fees—The CDTFA administers several special tax programs, including:
   • Cigarette and Tobacco Products Tax
   • Diesel Fuel Tax
   • Use Fuel Tax
   • Interstate User Tax

How To File Business Taxes in California

The federal and state agencies listed above have outlined a detailed process for filing your business taxes electronically. We’ve collated the necessary information about filing with each agency below:

1. Tax filing with the IRS
2. Tax filing with the FTB
3. Tax filing with the EDD
4. Tax filing with the CDTFA

Tax Filing With the IRS

The IRS offers e-filing options for sole proprietors, individual tax returns, corporations, partnerships, employment taxes, and information returns. You need to file the following forms as part of tax registration:

Tax Filing With the FTB

To e-file from FTB for free, visit the CalFile website and create a MyFTB account. To register, you must have your CA tax return filing done for at least one of the last five years. The process takes about 15–30 minutes to complete and is highly secure.

Alternatively, you can seek the help of an authorized e-file provider for your zip code or city name.

Tax Filing With the EDD

Employers or their payroll agents can manage a business’s payroll taxes online from the EDD website. For that, you need to enroll as an employer or a representative and register for an Employer Payroll Tax Account Number.

Tax Filing With the CDTFA

The CDTFA provides online filing services for eligible business accounts. If your account isn’t eligible for online filing, the agency will mail you the necessary return or report at the end of the reporting period.

To file your taxes with the CDTFA, you need:

• A CDTFA account number
• Sales, purchases, transactions, and deductions for the filing period

Once you log in, you can file the return and make the payment online.

Registering for business taxes in California can be complex. You will need to carefully research the specific tax registration requirements for your industry, gather all necessary documentation, and ensure an accurate filing.

To simplify the process, consider partnering with a service provider that specializes in business tax registration and handles the filings on your behalf.

Harbor Compliance—Your Reliable Business Tax Registration Solution

Harbor Compliance’s Payroll Tax Registration service helps you with tax registration, enabling you to hire employees and process payroll on time.

Here’s all we offer to assist you with tax filings:

• Error-free payroll, franchise, and sales and use tax registration —We handle the entire process, ensuring your business is fully registered with the IRS, FTB, CDTFA, and EDD.
• Continuous renewal management —We monitor and handle your tax renewals to ensure timely submission.
• Tailored expertise —Our team offers personalized advice and support, guiding you through each step of the tax registration process with ease.

For other tax-related tasks, we also offer an in-built Tax Manager, a module from our award-winning Software Suite that helps you track tax IDs, monitor filing statuses, and receive timely alerts for upcoming deadlines.

It enables easy management of payroll, sales, and corporate income tax accounts, ensuring that all tax-related information is securely stored and easily accessible.

How To Partner With Harbor Compliance

To order our Payroll Tax Registration Service, follow these four steps:

1. Visit our Payroll Tax Registration page.
2. Select Order Online.
3. Fill in the required business information on the form.
4. Complete your order by clicking Check Out.

Our team will update you once your filing is processed. To explore and enjoy the benefits of our Tax Manager, schedule a free demo. Choose a date and time that work for you, and we will contact you.

Additional Services by Harbor Compliance

Besides business tax registration, we offer additional services to assist your company in meeting all your entity and tax requirements. Check out the table below for more details:

California Business Tax FAQs

Below, we’ve addressed some common questions about filing California business tax. For more details, visit the Harbor Compliance Information Center.

Simplify Your California Business Tax Filing With Harbor Compliance

Filing taxes can be exhausting as you need to gather complex financial data, stay updated on changing tax laws, and ensure accuracy across multiple forms and deadlines. Mistakes or missed deadlines can lead to costly penalties or audits, making the process even more stressful.

Outsourcing these tasks to a reliable provider like Harbor Compliance simplifies this by handling the details, so you can focus on running your business. Order our Payroll Tax Registration Service and Tax Manager, and let us deal with your tax workload.

To get an evaluation of your regulatory standing, get a free Harbor Compliance Score™. Additionally, you can contact us or schedule a demo to learn more about our services.