Guide to Laws for California Taxpayers

Taxpayer

By law you have certain rights with respect to paying your California state income taxes (to the California Franchise Tax Board or FTB)¹FTB rights and property taxes.

Be sure to also check out your rights as a Federal taxpayer.

For specific questions about how to prepare your taxes, you should talk to a tax professional, such as an accountant or bookkeeper.

What happens if I can’t get my taxes in on time?

You have an automatic right to file for a 6 month extension. But if you owe the government money, you will be required to pay both late fees AND interest beginning the day after tax day.

What is an “audit”?

An audit is when the IRS (or FTB) asks for documentation and receipts to prove all of the claims, deductions, etc. you make on your tax returns. The government generally audits a certain percentage of taxpayers each year. So even though you don’t need to send this documentation with your tax return, you should keep it in your records in case you get audited.

How do taxes work for a freelancer or small business? 

If you are a freelancer or small business, you actually must pay taxes 4-5 times per year, not just once. Also, your clients/customers are generally not required to withhold any taxes from your compensation, as you are responsible for dealing with taxes. But your business clients may be required to send you a “1099” each year. See more at our Freelancer law and Business Owner page.

Is there a way for freelancers or small business owners to reduce self-employment taxes?

Actually, yes! See our Business Owner & Entrepreneur page.

Property Taxes

Are there limits on how high property taxes can be?

Yes, in California the total property taxes a homeowner pays per year is limited to 1% of the “taxable value.” This is because voters passed Proposition 13 in 1978.

How is the taxable value of a house determined? 

The taxable value of a property in California is the most recent purchase price of the property, plus about 2% increase per year (or the rate of inflation, whichever is lower). The property can only be “reassessed” for tax purposes when there is a change in ownership. Again, these rules are due to Prop 13.

Other State and Local Taxes

Are there limits on the government’s ability to increase taxes?

Yes. For local governments in California to create or raise any “special tax” such as for parks or transportation, they must get approval of at least 2/3 of the voters. Once again, this is due to Prop 13 which voters passed in 1978.

In addition, under Prop 26, which voters passed in 2010, many so-called “fees” are now considered “taxes,” and thus must be approved by 2/3 of the voters. This applies to fees for services that benefit the public broadly, rather than providing services directly to the fee payer. This includes many fees on businesses, such as a hazardous materials fee, or fees on alcohol retailers.

However, it has also been interpreted to apply to fees for services such as utilities, where some part of the fee goes to something other than providing the utility. For example, the LADWP charges ratepayers more than it costs to provide them with electricity, and some of this revenue goes to subsidize low-income people and also to the general fund to pay for police, fire, and other services.

Another limit is that the state may not raise taxes without a vote of at least 2/3 of both houses of the state legislature. This also comes from Prop 26.

Do I need to pay local income tax?

In many cities and counties in California, businesses (including freelancers) must pay taxes on their business income. This is usually assessed through a “business license.” See our Guide to Business Licenses for more.

Exercise Your Rights

Find options for getting legal help regarding a tax case.