Introduction
California and Texas are two of the largest economies in the U.S., but their tax systems couldn’t be more different. If you’re starting or relocating a business in 2025, understanding how each state handles taxation is critical to your bottom line.
Key Tax Categories Compared
Tax Category | California | Texas |
---|---|---|
Corporate Tax | 8.84% | None |
Franchise Tax | Yes ($800 min for LLCs) | Yes (Margin Tax) |
Personal Income Tax | Up to 13.3% | None |
Sales Tax (State) | 7.25% base | 6.25% base |
Property Tax Rate (Avg) | 0.76% | 1.60% |
Payroll/Employment Tax | Yes | Yes |
Business Income Tax: CA vs. TX
Applicable Code: IRC §7701; California Revenue & Taxation Code §23151
- California:
- 8.84% corporate tax on C Corporations (Form 100)
- 1.5% tax for S Corporations (Form 100S)
- LLCs pay an $800 minimum plus gross receipts fee (Form 568)
- Texas:
- No corporate income tax
- Businesses instead pay a Margin Tax (see next section)
Franchise Tax: LLCs and Corporations
State | Franchise Tax Structure |
---|---|
California | $800 minimum + gross receipts (LLCs) or % of net income (corps) |
Texas | Margin Tax: 0.375% to 0.75% on gross revenue over $2.47M (2024 threshold) |
Example:
- A Texas LLC with $5M in revenue may owe ~$18,750 in franchise tax
- A California LLC with similar revenue owes $800 franchise tax + $6,000 gross receipts fee
Sales Tax Structure and Rates
- California:
- State base rate: 7.25%
- Combined local rates: up to 10.75%
- Administered by CDTFA
- Texas:
- State rate: 6.25%
- Local add-ons: up to 8.25%
- Administered by Texas Comptroller
Both states require registration and periodic filing of sales and use tax returns.
Payroll & Employment Taxes
Tax | California | Texas |
---|---|---|
Unemployment Tax | 1.5%–6.2% (on $7,000 wages) | 0.31%–6.31% (on $9,000 wages) |
State Disability | Yes (1.1%) | No |
State Income Withholding | Yes | No |
In California, employers must register with EDD; in Texas, with the Texas Workforce Commission.
Real Estate and Property Tax Impact
- California:
- Property tax is 1% of assessed value under Prop 13
- Assessed value increases capped at 2% annually
- Texas:
- Higher property tax rate: average 1.6%
- No limits like Prop 13
- Property owners may face frequent reassessments
Example:
A business property worth $1M:
- CA tax ≈ $10,000/year
- TX tax ≈ $16,000/year
Entity Registration and Ongoing Costs
State | Initial & Annual Fees |
---|---|
California | $70–$100 formation + $800/year + Statement of Info |
Texas | $300 formation + no annual franchise fee if under $2.47M gross revenue |
California’s $800 minimum tax applies even if no income is earned, making it costlier for startups and holding companies.
Step-by-Step Guide for Business Owners Considering a Move
Step 1: Determine your business structure and expected revenue
Step 2: Calculate tax obligations under both state laws
Step 3: Consider payroll and property tax impact
Step 4: Evaluate entity maintenance and filing requirements
Step 5: Consider market, talent, and operational needs
Step 6: Consult a CPA for legal structuring and transition planning
Conclusion
Texas offers significant tax savings for many business types, especially startups and high-margin service providers. However, California may still make sense for companies that require access to venture capital, a skilled workforce, or the state’s massive consumer market. The best choice depends on your business model, growth plans, and risk tolerance.
Call to Action
Considering a move to Texas or staying in California? Let’s do the math together.
Schedule a consultation with Anshul Goyal, CPA EA FCA, a U.S.-licensed CPA and IRS Enrolled Agent who advises business owners on multistate tax strategies and corporate structuring.
📅 Book your appointment here
FAQs – CA vs. TX Business Tax Comparison
Q1: Is Texas really tax-free for businesses?
Not entirely. Texas doesn’t have income tax but charges a Margin Tax on gross revenue.
Q2: Can I avoid California’s $800 tax by registering in Texas?
Only if you stop doing business in California. If you have nexus in CA, you still owe.
Q3: Is it easier to form an LLC in Texas?
Yes. Texas has fewer annual maintenance costs and no minimum tax for low-revenue entities.
Q4: Are payroll taxes higher in California?
Yes. California adds state disability insurance (SDI) and income tax withholding.
Q5: Can I have companies in both states?
Yes—but you must register as a foreign entity in both states and pay dual compliance fees.
About Our CPA
Anshul Goyal, CPA EA FCA is a Certified Public Accountant in the U.S., Enrolled Agent before the IRS, and Fellow Chartered Accountant. With 15+ years of experience, Anshul advises startups, high-income founders, and business owners on multistate taxation, entity strategy, and tax efficiency, saving clients over $200M.
Disclaimer
This blog is intended for informational purposes only and should not be considered legal or tax advice. State tax laws change frequently. Always consult with a licensed CPA before making decisions about business registration, relocation, or compliance.