Professional Services & Consultants Bookkeeping in California

Whether professional services & consultants services are taxable in California is the question that catches people out — states differ enormously, and several have been broadening what counts. Highest statewide base rate in the country, and district taxes stack on top. LLCs also owe the $800 annual franchise tax to the Franchise Tax Board regardless of income. We code service revenue separately from any product revenue so the treatment is explicit rather than assumed.

Economic nexus in California is $500,000 in sales. For professional services & consultants, that threshold is the one to watch, because it is reached by selling into the state — no office, no staff, no physical presence required. Once you cross it you are expected to register with the California Department of Tax and Fee Administration (CDTFA) and begin collecting. We track your California sales against it and tell you before you cross, not after.

Registering to do business in California runs through the California Secretary of State, with tax accounts through the California Department of Tax and Fee Administration (CDTFA) and employer accounts through the California Employment Development Department (EDD). California treats these as wholly independent, so being in good standing with one says nothing about the others — and the sales tax account is the one that accrues a real balance while you are not looking.

The California statewide base rate is 7.25%. Local rates stack on top and are generally sourced to the delivery address, so the effective rate varies within the state. Getting sourcing right is what keeps the liability account matching what you actually collected.