Operating a business in California requires a solid understanding of the state's tax framework. The base state sales tax rate is 7.25%, with local jurisdictions adding up to 3.25%. LLC formation costs $70 in 2026.
Economic Nexus in California
Remote sellers must collect California sales tax if they exceed $500,000 in annual sales within the state. This threshold has been in effect since 2019-04-01. Marketplace facilitators like Amazon and Etsy are also required to collect and remit tax on behalf of third-party sellers. The California Department of Tax and Fee Administration (CDTFA) enforces these provisions and provides registration guidance at https://www.cdtfa.ca.gov.
LLC Formation in California (2026)
Forming an LLC in California costs $70 for the initial filing. An annual franchise tax of $800 is required to maintain good standing. The annual report fee is $25. California imposes a state income tax, which affects pass-through LLC taxation.
The process involves filing Articles of Organization with the Secretary of State, obtaining a federal EIN, and registering for applicable state tax accounts. You will also need a sales tax permit from the California Department of Tax and Fee Administration (CDTFA).
Key Tax Rules
• California imposes a statewide base sales tax of 7.25%, the highest in the nation.
• District taxes can add up to 3.25%, making the combined rate as high as 10.50%.
• Marketplace facilitators must collect and remit sales tax on behalf of third-party sellers.
• Economic nexus threshold: $500,000 in sales within the state.
Sales Tax Exemptions
The following categories are generally exempt from sales tax in California: groceries, prescription medications, medical devices. Businesses should maintain proper documentation for exempt transactions.