"California taxes are a big disadvantage for business owners," he said. Still, the high tax burden can be excessive for some companies, even to the point of driving them out of the state, said Matthew Ross, co-owner and COO of The Slumber Yard. However, Sole said the tax dollars that are directed to public projects such as infrastructure maintenance and public transportation also serve to benefit businesses that rely on regular travel, like his. "It's no secret that California is a higher-tax state, and that can cause some strain on businesses because, really, who enjoys paying taxes?" Sole said. Check out the California Tax Service Center for forms you'll need. Then there's the California franchise tax, which is due annually. If you hire employees, you will need to register for California employer taxes, which include the employee withholding tax, employment training tax, unemployment insurance tax and disability insurance. 38 in the nation.Ĭalifornia businesses have sales and use tax levied by states, counties and municipalities on transactions. Tax Freedom Day, which represents how long it takes taxpayers to meet their tax burdens, falls on April 23 for California that's seven days later than the national Tax Freedom Day, placing it at No. The top individual income tax rate is 13.3%. Individual taxes, which impact pass-through entities like LLCs, are also high. "I consider it an expensive place to do business."Īccording to the Tax Foundation, the state's top corporate income tax rate is 8.84%, and its overall business tax climate ranks 49th in the nation. "Taxation is always a contentious issue in California," said Rodney Yo, owner of Best Online Traffic School. While taxes vary by entity (for example, a C-corp will be taxed differently from an LLC), the general consensus is that they are steeper in California than in nearby states. While California frequently creates new regulatory requirements or revises old ones, many entrepreneurs are willing to roll with the punches.Ĭalifornia is generally known as a state with relatively high taxes, something that business owners universally recognize. Most business owners we spoke to view regulatory compliance as a fact of life, regardless of which state they operate in.
"California is typically on the forefront of policy initiatives and works to ensure all Californians have the opportunity to earn a living wage, that businesses and employees operate on a fair and level playing field, and that we have a sustainable future by monitoring our natural resources and environmental impact," Sole added. "That is not to say that the regulatory environment is a negative aspect of doing business in the state rather, it is more a cost of doing business in this great state. "California has a complex and ever-changing regulatory landscape, and that shifting landscape can be one of the trickiest parts of owning a business in the state," said Matt Sole, president of Anago of the Bay Area. The recent California Consumer Privacy Act of 2018, for example, is the state's response to the European Union's General Data Protection Regulation (GDPR) and requires businesses to take measures to protect any consumer data they collect, analyze and utilize. The state's willingness to rely on new regulatory measures makes compliance a moving target, which can be a challenge for some businesses. Complex regulationsĬalifornia is known for experimenting with new regulations. How does this economic landscape translate to the fortunes of small businesses throughout the state? What unique challenges do California's small business owners face despite these strong economic indicators? Business News Daily got in touch with some of the state's entrepreneurs to find out.
HOW TO OBTAIN A SMALL BUSINESS LICENSE IN CALIFORNIA PROFESSIONAL
The top five industries in the state are finance, insurance, real estate, rental and leasing professional and business services government and government enterprise information and educational services, healthcare and social assistance. The state's unemployment rate stands at a healthy 4.3%, which is slightly higher than the national unemployment rate of 3.6%. California's gross domestic product (GDP) grew at a rate of 3.5% through the third quarter of 2018, which outpaced the U.S. Small businesses make up 99.8% of all businesses within the state and employ 48.8% of the state's workforce, making them a vital part of the Golden State economy. Tap into the right resources to get the help you need and make sure you're within the law.Ĭalifornia is home to more than 4 million small businesses, which employ 7.1 million people across the state.Expect to pay more in taxes and have a higher cost of living than you would in almost any other state.You'll need to navigate a complex set of rules and regulations unique to California.
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