General Fund Revenue
Corporation Tax: $10.816 Billion

Corporation tax revenues are expected to contribute 10.7 percent of all General Fund revenues and transfers in 2007-08. After growth of 19 percent in 2005-06, corporation tax revenues are expected to remain at the same level in 2006-07, and grow 4.9 percent in 2007-08. The 2007-08 estimate includes $8.5 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.

  • The Franchise Tax Board, which administers the corporation tax, prepares an annual report that provides additional information on income subject to the corporation tax, taxes collected, and characteristics of corporations paying the tax. The FTB website, www.ftb.ca.gov, contains this report. Information on corporation tax deductions and credits is included in the Department of Finance's Tax Expenditure Report.
Revenues forecast for 2006-07 and 2007-08 and preliminary collections for 2005-06 are as follows:


CORPORATION TAX REVENUE
 (Dollars in Billions)

  • 2005-06 (Preliminary) $10.316
  • 2006-07 (Forecast) $10.311
  • 2007-08 (Forecast) $10.816
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CHAPTER HIGHLIGHTS for Revenue Estimates Back to Top

 General Fund Revenue
  Personal Income Tax: $55.598 Billion
  Sales and Use Tax: $29.347 Billion
 image of black pointing arrowCorporation Tax: $10.816 Billion
  Insurance Tax: $2.354 Billion
  Alcoholic Beverage Taxes: $325 Million
  Cigarette Tax: $122 Million
  Property Taxes
  Estate/Inheritance/Gift Taxes
 Special Fund Revenue
PRINTABLE BUDGET DOCUMENTS Back to Top
Budget Summary - Revenue Estimates (pdf * - 231K) -
Provides this entire Revenue Estimates Chapter in pdf format.

SCHEDULE 2 - Summary of State Tax Collections (pdf * - 9K) -
State Tax Collections per capita and per $100 of personal income.

SCHEDULE 3 - Comparative Yield of State Taxes (pdf * - 12K) -
Revenues for Major State Taxes from 1970-71 through 2007-08.

SCHEDULE 8 - Comparative Statement of Revenues (pdf * - 20K) -
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.
ADDITIONAL INFORMATION Back to Top
Board of Equalization
This site provides information about taxes levied on property, sales, fuel, cigarettes, and alcoholic beverages. The Board prepares an annual report which can be located using that site's search function.
Franchise Tax Board
This site provides information about taxes levied on personal income and on corporations. The Board prepares an annual report which can be located using that site's search function.
Tax Expenditure Report
The Department of Finance annually updates this report on major tax exemptions, exclusions, and credits. This report is posted on Finance's website within the "Financial and Economic Data" page.