California Home-Based Business Laws: Zoning, Permits, and Taxes
Running a business from your house in California involves more layers than most people expect. The state does not issue a general business license, and the rules that decide whether you can see clients, post a sign, or hire help are written by your city or county. This guide covers the order to work in: zoning first, then local registration, then your state entity, tax, and employer obligations.
This article is informational content, not legal or tax advice. Rules change, and local ordinances vary. If your setup is complex, such as a business with employees, inventory, or a lease that restricts business use, consult a qualified attorney or CPA before you start.
Start With Zoning, Because It Is Local
California has no general state statute that governs home-based businesses. Cities and counties regulate home occupations through their zoning codes, and those codes differ, sometimes even between neighboring towns. A business that is allowed in one city may need a permit in the next.
Call or visit the planning department that covers your address and ask these questions:
- Is a home occupation permit or a similar approval required, and if so, what is the application process?
- How many clients or customers can visit the home, and at what hours?
- Are signs allowed, and what size and placement apply?
- Can anyone other than the residents work at the home?
- Are there limits on storage, equipment, deliveries, or vehicles tied to the business?
Get the answers in writing when you can. A zoning approval is only as useful as the record of what the staff told you.
Local Business Tax Registration Is a Separate Step
Zoning approval does not replace a business tax registration. Of California's 483 cities, 445 report revenue from a local business tax or registration certificate, and most cities require one even for home-based businesses. There is no common formula, so the amount and the method depend on the city. Some cities list a home-based category with its own rate. Ask the city's business license or revenue office what applies to your activity.
Every local license or renewal also carries a $4 state fee under Government Code 4467. For the full registration process, read our California business license guide.
Family Day Care Has Its Own Rules
If you operate a small or large family day care home, state law treats it as a residential use by right. Under Health and Safety Code 1597.45, a local government cannot impose a business license, fee, or tax for operating one.
Local rules on height, setbacks, and lot size can still apply, along with health, safety, and building standards. They apply only if they are identical to the rules for other homes in the same zone.
Selling Food Made at Home
California's cottage food law lets you make certain foods in your home kitchen and sell them. There are two tiers:
- Class A operations register with the local enforcement agency.
- Class B operations hold a permit and are subject to inspection.
For 2026, the sales caps are $88,878 for Class A and $177,756 for Class B. The state health department adjusts these figures each January 1 for inflation, so check the current table before you plan around a number. A registration or permit issued by one county is valid statewide.
Home restaurants under the MEHKO program are a separate option. They are allowed only in counties that have opted in, they carry a $100,000 inflation-adjusted cap, and they require same-day preparation. Confirm whether your county participates before you plan a food business around this option.
For the rules in detail, read our guides to the cottage food law, Class A and Class B, and the 2026 sales caps and to MEHKO home restaurant permit limits and participating counties.
Register Your Entity With the Secretary of State
If you form an LLC or a corporation, you file with the California Secretary of State through bizfile Online. The Business Programs Division keeps the current forms and fees at sos.ca.gov/business-programs. The main figures are:
- LLC: Articles of Organization (Form LLC-1) cost $70. A Statement of Information (Form LLC-12) costs $20 every two years.
- Corporation: Articles of Incorporation cost $100. A Statement of Information (Form SI-550) costs $25 every year.
- Name reservation: Reserving an LLC name costs $10 and lasts 60 days.
A missed Statement of Information can lead to a $250 penalty after a Secretary of State notice. An LLC name must include "limited liability company," "L.L.C.," or "LLC," and it cannot contain words such as "bank," "trust," "incorporated," "inc.," "corporation," or "corp."
Two limits matter for some businesses. California does not allow a domestic series LLC. An LLC also cannot render a licensed professional service, so licensed professionals use a professional corporation instead.
Fictitious Business Name Filing
If you operate under a name other than your legal name, you must file a Fictitious Business Name Statement with the County Clerk-Recorder in the county of your principal place of business. The filing is due within 40 days of starting the business. You must also publish the statement in a newspaper once a week for four weeks, and the filing expires after five years.
The statutory fee is $10, plus $2 for each additional name or owner. Counties often charge more, and the newspaper publication fee is separate. For the step-by-step process, read our guide to filing a DBA.
The LLC Franchise Tax and LLC Fee
Every LLC, LP, and LLP organized or registered in California from 2024 through 2026 owes the $800 minimum annual franchise tax from its first year. The first-year exemption covered only LLCs formed from 2021 through 2023, so an LLC formed in 2024 or later owes the $800 starting in year one.
An LLC whose first taxable year begins in 2027, 2028, or 2029 pays $400 in year one under RTC 17941(g)(2). Confirm the first-year amount with the Franchise Tax Board before you file.
The LLC fee is based on California-source total income:
| Total California-source income | Annual LLC fee |
|---|---|
| $250,000 to $499,999 | $900 |
| $500,000 to $999,999 | $2,500 |
| $1,000,000 to $4,999,999 | $6,000 |
| $5,000,000 or more | $11,790 |
A newly incorporated or qualified corporation and an S corporation owe no $800 minimum in their first taxable year. S corporations otherwise pay 1.5% of net income with an $800 minimum, and regular corporations pay 8.84% of net income. Check with the Franchise Tax Board or a CPA before you rely on any of these figures for your own filing.
Sales Tax and the Seller's Permit
If your business sells taxable goods, you need a seller's permit from the California Department of Tax and Fee Administration (CDTFA). The permit is free. The statewide base sales tax rate is 7.25%, and district taxes push city rates up to between 7.25% and 11.75%. When you buy goods for resale, you give your supplier a resale certificate, and the state does not require a specific form for it.
Find the rate for your city and the permit details at cdtfa.ca.gov. Our guide to California sales tax rates by city covers the rate ranges in more detail.
Business Equipment and Property Filing
If your business personal property costs $100,000 or more in total, you must file a business property statement with the county assessor each year by April 1. Equipment, furniture, and tools used in the business can count toward that total, so add them up before you assume you are below it. Read our guide on the business personal property tax form due April 1.
Hiring Employees
Hiring your first employee changes your obligations. You register with the Employment Development Department (EDD) as an employer, and you must carry workers' compensation coverage for your employees. The state minimum wage is $16.90 in 2026 and $17.40 from January 1, 2027, according to a secondary source, so verify both figures with the state before you set pay. Our guide to registering as an employer with EDD walks through the registration and new hire reporting steps.
Licensed Trades Need a State License
A home business in a regulated trade or profession needs a license from the state board that oversees it, such as the Contractors State License Board or a Department of Consumer Affairs board. A contractor license is required for jobs at a $1,000 threshold, so check whether your work reaches it before you bid on a job.
Private Limits: Your Lease and Your HOA
Even when the city allows your business, your lease or your homeowners association's governing documents can restrict it. Read the lease, the CC&Rs, and any association rules before you open. If the language is unclear, ask your landlord or the HOA board in writing. Do not assume the city's approval overrides a private agreement.
The Home Office Deduction
For federal purposes, the home office deduction requires regular and exclusive use of part of your home for business. The IRS offers a simplified method of $5 per square foot, up to 300 square feet. California conformity to federal deduction rules is a separate question, so check with the Franchise Tax Board or a tax professional before you claim it on a California return.
Your Starting Checklist
- Confirm zoning with the planning department and get the answers in writing.
- Register for your city or county business tax, and pay the $4 state fee on each license or renewal.
- Form an LLC or corporation with the Secretary of State if you need one, and file the Statement of Information on time.
- File a fictitious business name statement if you use a name other than your legal name.
- Get a free seller's permit from the CDTFA if you sell taxable goods.
- Register with the EDD and arrange workers' compensation before your first hire.
- Obtain any license your specific activity requires from a state board or county.
For free-of-charge guidance on planning these steps, the California Small Business Development Center network offers one-on-one advising at californiasbdc.org. For the state's business registration resources, start at the Secretary of State's Business Programs Division.
This article is informational content, not legal or tax advice. Because home-based business rules depend on your city, county, lease, and activity, consult a qualified attorney or CPA before you make decisions that carry legal or tax consequences.