General Fund Revenue
Corporation Tax

Corporation tax revenues are expected to contribute 11.6 percent of all General Fund revenues and transfers in 2008-09. After growth of 8.2 percent in 2006-07, corporation tax revenues are expected to decline 4.3 percent in 2007-08, and grow 11.8 percent in 2008-09. The 2008-09 estimate includes a one-time acceleration of $847 million from bringing the tax revenue accruals into conformity with Generally Accepted Accounting Principles and $14 million from additional efforts to reduce the tax gap.

Corporation tax revenues are derived from the following sources:

  • The franchise tax and the corporate income tax are levied at a rate of 8.84 percent on net profits. The former is imposed on corporations that do business in California, while the latter is imposed on corporations that derive income from California sources without doing business in the state. For example, a corporation that maintains a stock of goods in California to fill orders taken by independent dealers would be subject to the corporate income tax.
  • Corporations that have a limited number of shareholders and meet other requirements to qualify for state Subchapter S status are taxed at a 1.5-percent rate rather than the 8.84 percent imposed on other corporations.
  • Banks and other financial corporations pay the franchise tax plus an additional 2-percent tax on net income. This "bank tax" is in lieu of local personal property and business license taxes.
  • The alternative minimum tax is similar to that in federal law. Imposed at a rate of 6.65 percent, the alternative minimum tax ensures that corporate taxpayers do not make excessive use of deductions and exemptions to avoid paying a minimum level of tax.
  • A minimum franchise tax of $800 is imposed on corporations subject to the franchise tax, but not on those subject to the corporate income tax.
  • A fee is imposed on limited liability companies (LLC) based on total income. The fee ranges from $900 for LLCs with income between $250,000 and $499,000, to $11,790 for LLCs with income of $5 million or more. LLCs with total income of less than $250,000 do not pay this fee.
The corporation tax forecast is based on an analysis of California taxable profits, employment rates, proprietors' income, and actual cash receipts.

From 1943 through 1985, corporation tax liability as a percentage of profits closely tracked the corporation tax rate. Since 1986, tax liability as a percentage of profits has dropped below the expected level of 8.84 percent. Increasing S-corporation activity and use of credits have been the primary factors contributing to a divergence between profit and tax-liability growth. Businesses that elect to form as S-corporations pay a reduced corporate rate, with the income and tax liability on that income shifted to the personal income tax.

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CHAPTER HIGHLIGHTS for Revenue Estimates Back to Top

 General Fund Revenue
  Personal Income Tax
  Sales and Use Tax
 image of black pointing arrowCorporation Tax
  Insurance Tax
  Alcoholic Beverage Taxes
  Cigarette Tax
  Property Taxes
  Estate/Inheritance/Gift Taxes
  Other Revenues
 Special Fund Revenue

PRINTABLE BUDGET DOCUMENTS Back to Top
Budget Summary - Revenue Estimates (pdf * - 540K) -
Provides this entire Revenue Estimates Chapter in pdf format.


SCHEDULE 2 - Summary of State Tax Collections (pdf * - 113K) -
State Tax Collections per capita and per $100 of personal income.


SCHEDULE 3 - Comparative Yield of State Taxes (pdf * - 116K) -
Revenues for Major State Taxes from 1970-71 through 2008-09.


SCHEDULE 8 - Comparative Statement of Revenues (pdf * - 18K) -
Detail of General and special fund revenues by source for the past, current, and budget years within the following categories: (1) major taxes and licenses, (2) minor revenues, and (3) transfers and loans.