California Corporate Tax: What It Is and How It Works

California has a high corporate tax rate and strict rules, but its large market and strong economy can benefit some businesses. Companies incorporated or operating in the Golden Gate state should understand the tax rate, how it applies and the filing process. A financial advisor can help with specific tax planning needs.

What Is the California Corporate Tax Rate?

As of 2025, California imposes a flat corporate income tax rate of 8.84%. This rate applies uniformly, without graduated brackets, meaning all taxable income is subject to the same percentage. Banks and financial institutions are subject to a slightly higher rate of 10.84%. In addition to the corporate income tax, California requires corporations to pay an annual franchise tax of $800 in the first quarter of each accounting period as well as statewide sales and use tax rates of 7.25%.

How Does the California Corporate Tax Rate Work?

The application of California’s corporate tax rate varies based on a corporation’s incorporation status and business activities within the state:

Domestic corporations: These entities are incorporated under California law and are subject to the state’s corporate income tax on all net income derived from both within and outside California. They are also required to pay the annual minimum franchise tax of $800.
Foreign corporations: Companies incorporated in another state or country that conduct business in California are subject to California’s corporate income tax on income earned within the state. They must also comply with the minimum franchise tax requirement.

For example, consider a corporation incorporated in Nevada that operates a branch in California. This foreign corporation must pay California’s 8.84% corporate income tax on the net income generated from its California operations. Additionally, it is obligated to pay the $800 minimum franchise tax annually, regardless of profitability.

How to File Your California Corporate Taxes

A business owner filing his corporate taxes in California.

Businesses operating or incorporated in California must follow specific steps to report income and meet tax obligations. Understanding the process can help companies avoid penalties and stay compliant with state regulations. Here are five general steps to help you file your corporate taxes.

1. Determine Your Filing Requirements

Find out which tax forms and payments your business needs to file based on its structure and activities:

Domestic corporations: Must file Form 100 (California Corporation Franchise or Income Tax Return) annually, reporting all income and paying the applicable taxes, including the minimum franchise tax.
Foreign corporations: Required to file Form 100 if they are registered to do business in California or have income derived from California sources.

2. Gather Necessary Documentation

Documentation can include the following:

Financial statements: Reflect the corporation’s financial activities with detailed income statements and balance sheets.
Federal tax return: Have a copy of the federal corporate tax return (Form 1120) available, as information from this form is often needed for state filings.
Records of income and deductions: Maintain comprehensive records of all income sources and deductible expenses to ensure accurate reporting.

3. Complete and Submit Required Forms

To meet compliance, you will need to fill out and submit tax forms by the deadline:

Form 100: Used for reporting corporate income and calculating the franchise tax. Ensure all income, deductions, and credits are accurately reported.
Form 3539 (payment for automatic extension for corporations and exempt organizations): If an extension is needed, this form allows corporations to request additional time to file their return. Note that an extension to file does not extend the time to pay any taxes due.

4. Make Necessary Payments

These estimated taxes need to be submitted on time to avoid penalties:

Franchise tax: The minimum $800 franchise tax is due within the first quarter of each accounting period, regardless of the corporation’s income or activity level.
Corporate income tax: Any tax due beyond the minimum franchise tax must be paid by the original due date of the return, typically the 15th day of the 4th month after the close of the taxable year (April 15 for calendar-year taxpayers).

Payments can be made electronically through the California Franchise Tax Board’s online services or by mailing a check with the appropriate payment voucher.

5. Maintain Compliance With Ongoing Requirements

Here are three common requirements businesses should keep in mind:

Estimated tax payments: Corporations with a tax liability above $500 are required to make quarterly estimated tax payments to avoid underpayment penalties.
Record keeping: Keep all tax records, including filed returns and supporting documents, for at least four years in case of an audit or review.
Stay informed: Tax laws and rates may change, so check the California Franchise Tax Board’s website or consult a tax professional to stay informed.

Bottom Line

A business owner reviewing compliance requirements.

California’s corporate tax system includes an 8.84% tax rate and an $800 minimum franchise tax. Businesses must meet deadlines, make estimated payments and follow reporting rules to avoid penalties. A financial professional can help with tax planning, compliance and long-term financial decisions.

Tax Planning Tips

If you’re looking for ways to lower your tax liability, a financial advisor who specializes in tax planning can help optimize your finances. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you are self-employed or a business owner, you can lower taxable income by deducting home office costs, retirement contributions and business expenses. Structuring income for a qualified business income (QBI) deduction can also help reduce taxes.