California sits in the western US on the Pacific coast, bordering Mexico to the south. Its American neighbors are Oregon, Nevada and Arizona. The third-largest state by area (420,000 km²) is bigger than Germany. More than 40 million people call "The Golden State" home, making it by far the most populous state in the US. At 4,418 meters, Mount Whitney is the highest peak in the US outside Alaska. Above all, though, California's landscape is defined by its countless beaches and nature parks.
California's economy is booming. Measured globally, it would currently rank fifth in the world. It thrives on industrial growth, access to a highly skilled workforce, solid infrastructure and a consumer market of 39 million residents.
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A prime business location
In recent years, the "Golden State" has become the most efficient and profitable business location in the world. California combines intellectual capital, business services and financial savvy, among other things, helping companies grow to their full potential. The "Golden State" is home to 51 Fortune 500 headquarters. Californian companies are 2,156% more profitable than Texan companies and 38% more profitable than New York companies.
California, capital of innovation
Silicon Valley, of course, is famous worldwide. Tech giants like Apple and Uber may lead the way, but reducing California to tech would be a mistake: the state also leads in scientific and medical advances, for example.
Companies in other industries, such as aerospace, renewable energy and agriculture, also benefit from California's technological progress. They can transform and optimize their processes and rise to the top of their fields.
The strong entrepreneurial spirit shows in the numbers: there are 141 new businesses for every 100,000 residents. The state backs its residents with billions in venture capital to keep its tradition of groundbreaking discoveries alive. California is also one of the 10 most popular US states for foreign direct investment.
Impressive higher education
The University of California network alone has produced 62 Nobel laureates at its research institutions. Alongside its excellent public university system, the "Golden State" also boasts some of the world's most prestigious private universities, including Stanford University and the California Institute of Technology.
Outstanding support for talent means the state's universities turn out graduates who reach the very top of their fields. Beyond the Nobel laureates, that includes politicians, astronauts and entrepreneurs who have become billionaires in the private sector.
The wide range of university programs is complemented by an extensive offering of workforce training and continuing education. Career Technical Education (CTE), for example, offers training in 15 key industries. The Employment Training Panel (ETP) helps employers fund further training for their staff.
A magnet for intellectual capital
California is home to one of the most diverse and best-integrated populations in the world. Its varied demographics and range of cultural perspectives have a very positive influence on the business environment.
Renowned universities draw a steady stream of local, national and international talent. Many students stay in California after graduating, enriching the business world with their bright minds and ideas and building their careers. The "Golden State" is also a magnet for experienced professionals, mostly because of the many opportunities in its job market.
This combination of very high quality and diversity makes California's workforce a major competitive advantage for companies that set up in the "Golden State" and aim for success.
Income tax in California
California levies an income tax of 1% to 13.3%, depending on income (the top rate includes the 1% Mental Health Services surcharge on income over $1 million). Federal income taxes are due on top.
Corporate tax in California
California levies a corporate tax of 8.84%. Federal corporate tax is due on top.
Sales tax in California
The USA has no VAT on the European model. Instead, states, counties and municipalities levy a local sales tax on the sale of goods (but not services).
California sales tax rate
California's state sales tax is 7.25%. Cities and counties add an average of 1.43%, for a combined average of 8.68%.
Here you'll find our quick introduction to US tax law for European entrepreneurs.
California nexus laws & sales tax
Effective date:
April 1, 2019
Included transactions:
Total combined sales of tangible personal property delivered into the state by the retailer and all persons related to the retailer. Services are not included in the threshold.
Treatment of exempt sales:
Exempt sales (i.e. non-taxable sales, such as sales for resale) are included; exempt services, however, are not included in the threshold
Trigger:
Sales only
Sales/transaction threshold:
$500,000
Evaluation period:
The threshold applies to sales in the previous or current calendar year
Additional information:
- Businesses that meet California's economic nexus threshold must collect all (local) district taxes as of April 25, 2019.
- Registration requirements: California requires remote sellers to register and start collecting sales tax on the day they exceed the economic nexus threshold. For more information, see the CDTFA FAQs.
- Tax collection requirements
- CDTFA Wayfair FAQs
- AB147
California marketplace sellers & sales tax
Learn more about registration requirements for marketplace sellers
Effective date for marketplace facilitators:
October 1, 2019
Economic nexus threshold:
More than $500,000 in California sales in the current or previous calendar year. When calculating the threshold:
- Remote sellers should include sales made through a marketplace facilitator
- Marketplace facilitators should include all sales through the marketplace
Registration requirements:
- Remote multichannel sellers: Once you exceed the economic nexus threshold, you must register and collect California use tax on sales not taxed by a marketplace facilitator.
- Remote marketplace sellers: You don't need to register with the state, even if you exceed the economic nexus threshold. Contact the California Department of Tax and Fee Administration (CDTFA) for more information.
- In-state multichannel sellers: You must register with the CDTFA and collect tax on sales not taxed by a marketplace facilitator.
- In-state marketplace sellers: You must register. Contact the CDTFA for more information.
- Learn more here.
To learn how to set up a company in California, see Company formation in California; our overview of the US states compares all 50 states. And if California's high taxes put you off: our sister site www.zerotax.llc shows which states work best for a tax-free US LLC.
Our services for California:
Want to set up a company in California? See Company formation in California for how it works with us and what it costs. In a consultation, we'll go through your plans together.