Starting a business in California: the bill your city sends

California collects from a business in two quite different ways, and only one of them is the one everybody warns you about. The state's side is well documented and mostly predictable — the $800 franchise tax, the Statement of Information, the income tax on profit that passes through to you — and it adds up to $4,130 over five years before anything else. All of that, including the trap where filing in the autumn makes you pay the $800 twice inside a few months, is on the California LLC page and there is no point repeating it here.

The city's side is the one nobody mentions. Almost every California city requires a business tax certificate before you trade inside its boundary, and in the larger cities the tax attached to it is priced on gross receipts — what you invoiced, not what you kept. Nothing about registering with the Secretary of State tells your city you exist, so the first contact is often a letter after the fact, or nothing at all until you try to renew something and discover you were never registered.

Two governments, two registers, and no wire between them. Everything that follows is the second one.

A tax on profit takes a share of what is left. A tax on gross receipts takes a share of what came in, before wages, before rent, before what you paid for the thing you sold. The consequence that matters for a California business is what it does to margin: two businesses invoicing the same amount pay the same city tax, even where one of them keeps eight times as much of it.

Los Angeles charges by activity category, per $1,000 of receipts, so a consultancy and a wholesaler on the same turnover are taxed at different rates. San Francisco runs its own Gross Receipts Tax alongside an annual registration fee that starts at $55 for 2026–27; since Proposition M passed in 2024, businesses at or under $5 million of San Francisco receipts are exempt from the Gross Receipts Tax itself, though the registration remains. Oakland, San Diego and San Jose each run their own version with their own thresholds and their own dates.

So the number to have in front of you when you look up your city's rate is not your profit. It is your invoiced revenue for the calendar year, which is a number most founders can produce in seconds and most spreadsheets don't hold anywhere obvious. If your margin is thin enough that a percent of revenue matters, that is a pricing question before it is a tax question.

This is the sharpest edge in the state, and it is entirely avoidable. Los Angeles exempts a business with under $100,000 of worldwide gross receipts from the city business tax — not just receipts earned in LA, everything the business took anywhere. That covers a great many one- and two-person businesses, and for them the tax is genuinely zero.

The condition is that you hold a Business Tax Registration Certificate and file the annual renewal statement on time. The renewal period runs early in the calendar year and the Office of Finance publishes the last timely date; for the 2026 period it was 2 March. Miss it and you do not get a late fee on a zero bill — you lose the exemption entirely for that year and owe the tax as though you had never qualified, with interest and penalties on top of it.

Put it in the calendar for the first week of February, every year, with the certificate number in the entry. That is the entire mitigation.

The registration follows where the business is done, not where it is registered. A contractor living in Pasadena who takes jobs in Glendale and Burbank is doing business in three cities, and each of them can require its own certificate and its own annual filing. A consultant who works entirely from a laptop at home usually deals with one city; a business that goes to customers' premises rarely does.

What this does not mean is that the tax is charged twice on the same money. Cities apportion — the tax is on the receipts attributable to that city — but the registration, the return and the deadline are separate in each one, and it is the paperwork rather than the money that catches people out. Four cities is four sets of dates, not four times the bill.

There is no single register that will tell you which cities want what, because these are not state taxes and the state does not keep one. The closest thing is CalGold: enter your city and your line of work and it lists the permits and licences that apply, with the issuing office for each. Ten minutes there before you quote a job in a new city is worth considerably more than ten minutes there afterwards.

Here is the genuinely good news, and it is bigger than it sounds. Services are generally not taxable in California. A designer, a consultant, a bookkeeper, a coach, a repair service billing labour only — none of them charges sales tax, and a pure service business often never needs a seller's permit at all.

Selling any tangible goods changes that, and the threshold is not a revenue figure — it is the first sale. One market stall, one box of merchandise alongside the service, and you need a seller's permit from CDTFA. It is free; CDTFA charges nothing for it, though it can require a security deposit in limited cases.

It is worth noticing how differently the two halves of this state behave. Sales tax is complicated in its rates and simple in its administration: one registration, one return, whatever the address. The city business tax is the reverse — the rate is usually easy to find and the administration multiplies with every boundary you cross.

California has the lowest employer registration trigger in the country. Pay more than $100 in wages in a calendar quarter and you must register with the Employment Development Department within fifteen days. Not $1,500, which is the common federal-style threshold in other states — one hundred dollars. Pay a teenager to hand out flyers for two Saturdays and you are over it.