An out-of-state company is “doing business” in California, and must file and pay California tax, once its California sales pass $757,070 (the 2025 amount, adjusted each year) or 25% of its total sales. Corporations and LLCs doing business there owe at least $800 a year. SaaS and services companies feel this most, because the federal protection for sellers of goods doesn’t cover them.
California at a glance
- Business tax: Corporation franchise and income tax
- Bright-line economic nexus test: $757,070 in sales, $75,707 of property, $75,707 of payroll or 25% of your total sales, property or payroll (2025)
- P.L. 86-272 protection for sellers of goods: Can apply
- Notes: Indexed every year; 2025 amounts are the latest published. California also charges an $800 minimum franchise tax.
Checked against state guidance in October 2026. Compare every state
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See where your company may owe state income, franchise or gross receipts tax, based on each state’s bright-line test, your physical presence and what you sell.
Your activity by state, for the tax year
Standards last reviewed September 2026. Many states have no bright-line test and decide nexus from your activities; local taxes, pass-through entity rules and withholding for remote employees are not covered. Results are estimates for general information only, not legal, tax or financial advice. Confirm them with your own CPA, tax adviser or attorney before making decisions. Using this tool does not create a client relationship with Catching Numbers Inc.
What is California’s economic nexus threshold for income tax?
California treats you as doing business in the state if any one of these applies for the tax year:
- California sales over $757,070, or more than 25% of your total sales
- Property in California over $75,707, or more than 25% of your total property
- Payroll in California over $75,707, or more than 25% of your total payroll
- You are organized or commercially domiciled in California, or you engage in any transaction for financial gain there
These are the 2025 amounts. The Franchise Tax Board adjusts them for inflation every year.
Does selling SaaS or services into California create nexus?
Yes, once your California sales pass the threshold. California assigns sales of services and software to where the customer receives the benefit, so subscription revenue from California customers counts toward the $757,070 test. The federal law that shields some sellers from state income tax, P.L. 86-272, covers only sales of physical goods, so it does not protect SaaS, services or digital products.
I only sell physical products. Am I protected?
Possibly. P.L. 86-272 can protect a company from California income tax if its only activity in California is asking for orders that are approved and shipped from outside the state. Inventory in California, employees working there or services after the sale take you outside that protection. California has also taken a narrow view of which online activities stay protected, and that position has been challenged in court, so get advice before relying on it.
How much is California franchise tax?
C corporations pay 8.84% of the net income apportioned to California, with a minimum of $800. S corporations pay 1.5%, also with an $800 minimum. LLCs pay an $800 annual tax plus an LLC fee once California gross receipts reach $250,000, ranging from $900 to $11,790 depending on receipts.
What do I have to file?
Corporations file Form 100 (S corporations Form 100S), and LLCs file Form 568. If you have California employees, you also need to register as an employer with the Employment Development Department for payroll withholding.
Do I also need to collect California sales tax?
That is a separate test. For sales tax, the threshold is $500,000 of goods delivered into California, and SaaS becomes taxable on January 1, 2027. See our California sales tax nexus guide.
Frequently asked questions
What is the California doing business threshold for 2026 and 2027?
The Franchise Tax Board publishes each year’s amounts once they are indexed, and as of October 2026 it has not yet posted the 2026 or 2027 figures. The latest published figures are for 2025: $757,070 of California sales, or $75,707 of property or payroll, or 25% of your totals.
Does a remote employee in California create nexus?
Yes. An employee working in California gives your company a physical presence there, and California payroll over $75,707 meets the payroll test on its own. You will also need to withhold California income tax from that employee’s pay.
Does Amazon FBA inventory in California create income tax nexus?
Inventory in California is property in the state, and it is not protected by P.L. 86-272. It can make you subject to California franchise tax and, for sales tax, gives you a physical presence too.
Do new corporations owe the $800 minimum tax in their first year?
Corporations that incorporate or qualify in California generally don’t owe the minimum franchise tax for their first taxable year. LLCs don’t get that exemption and owe the $800 annual tax from their first year.
Selling into California from another state?
We keep your books with revenue tracked by state every month, so you and your tax CPA can see where you have nexus and have clean numbers ready for each state return.
General information for remote sellers, checked against state guidance in October 2026. California rules change and depend on your facts, so confirm your situation with the state or a tax advisor before registering or filing. We don’t prepare sales or income tax returns.