How to Start a Business in Sacramento, California | Start a Business in California

Sacramento’s 1991-Era Business Tax — Still the Best Deal in the State

Sacramento has the lowest business tax burden of any major California city, and the reason is simple: the rates haven’t been updated since 1991.

The Business Operations Tax (BOT) — Sacramento’s version of a business license — charges most businesses a $30 flat minimum plus 0.04% on gross receipts over $10,000. And regardless of how large your business gets, the annual BOT is capped at $5,000. A company doing $500 million in annual revenue pays the same $5,000 maximum as a company doing $15 million.

Voters had a chance to change this. Measure C appeared on the March 2024 ballot and would have modernized the rate structure. Sacramento voters rejected it. The 1991 rates remain in effect.

For context, here’s how Sacramento compares to other major California cities:

City	Tax Structure	Annual Cost (example: $150K revenue, solo)
Los Angeles	Gross receipts by classification (0.1%-6.0%)	~$637+
San Francisco	Registration fee + gross receipts tax (if over $5M)	$150-500 (registration fee)
San Diego	Flat $34 for ≤12 employees	~$39
San Jose	Employee-based, inflation-adjusted	Varies
Sacramento	$30 + 0.04% on receipts over $10K, $5K cap	~$86

Sacramento’s $86 for a solo business making $150K is remarkable. But what’s even more remarkable is the $5,000 cap — even the largest businesses in the city pay no more than $5,000 per year in BOT.

BOT Rates by Business Type

Sacramento’s BOT has different rate categories depending on what your business does. All categories share the $5,000 annual maximum.

Sales and Service Businesses (most common):

$30 flat minimum plus 0.04% on gross receipts over $10,000
This covers the vast majority of businesses: retail, restaurants, consulting, professional services, tech companies, contractors, and most other business types

Licensed Professionals (accountants, attorneys, physicians, architects, engineers, etc.):

Tiered by years licensed:
- 1-3 years licensed: $75
- 4-6 years licensed: $150
- 7+ years licensed: $300
Plus $30 per licensed employee not receiving profits from the business

Real Estate Brokers:

$100 base plus $30 per employee or contractor

Insurance Brokers and Stockbrokers:

$100 base plus $30 per qualifying employee

Residential Landlords:

$25 base plus $1.75 per unit after the first 4 units
A landlord with 10 rental units pays: $25 + ($1.75 x 6) = $35.50 per year

Hotels and Motels:

$50 base plus $0.75 per unit after the first 4 units

Contractors:

Separate category with rates that vary by building permit volume

Revenue Services contact: (916) 808-8500 Online registration: sacramento.hdlgov.com

Step 1 — File with the California Secretary of State

The state filing process is the same across California, but Sacramento has a local advantage: the Secretary of State’s office is right here in the city.

LLC Formation:

File Articles of Organization (Form LLC-1) for $70
Online at bizfileOnline.sos.ca.gov
Processing: typically 3-5 business days for online filings
Statement of Information (Form LLC-12): $20, due within 90 days

In-person option: The SOS office at 1500 11th Street in Sacramento offers walk-in service. If you prefer handing your paperwork to a person instead of uploading it to a portal, Sacramento is the one California city where that’s easy to do.

Registered Agent:

Physical California address required
Registered agent services: $50-200 per year
You can serve as your own agent if you have a physical Sacramento address

The $800 Franchise Tax:

Every LLC pays $800 per year to the Franchise Tax Board (FTB)
Due by the 15th day of the 4th month after formation, then April 15 annually
AB 85 first-year exemption expired December 31, 2023 — you pay from year one
LLCs grossing over $250K pay additional fees: $900 ($250K-$500K), $2,500 ($500K-$1M), $6,000 ($1M-$5M), $11,790 ($5M+)
The FTB is headquartered in Sacramento too — 9646 Butterfield Way in Rancho Cordova

EIN: Free from the IRS at irs.gov, about 10 minutes online.

CDTFA Seller’s Permit: Required for selling tangible goods. Free registration at cdtfa.ca.gov. Sacramento combined sales tax rate: 8.75%.

California employer obligations (if hiring):

Register with the Employment Development Department (EDD) for payroll tax
California mandates unemployment insurance, state disability insurance, and paid family leave contributions
AB5 independent contractor classification rules apply — misclassification carries significant penalties
Paid sick leave: at least 40 hours (or 5 days) per year for all employees
CalOSHA workplace safety requirements apply to all California employers
Sacramento follows the state minimum wage of $16.90 per hour (the city does not have a separate higher minimum wage, unlike LA, SF, and San Diego)

State income tax: California’s progressive income tax tops out at 13.3%. Business income from LLCs and S-corps passes through to your personal return. Even in a lower-cost city like Sacramento, the state income tax is significant.

Step 2 — Register for the Business Operations Tax

With your state filing and EIN in hand, register with the City of Sacramento for your BOT.

How to register:

Apply online at sacramento.hdlgov.com
Or contact Revenue Services directly at (916) 808-8500

Required information:

Entity legal name and DBA
Business address
Business type (to determine which rate category applies)
Start date
Estimated gross receipts (for sales and service businesses)

Important: Sacramento does not issue a separate “business license.” The BOT registration IS your city business authorization. Once you’ve registered and paid your BOT, you’re authorized to operate within city limits from the city’s tax perspective. Additional permits (health, building, zoning) are handled by other departments, but the BOT is the core city registration.

Payment: Due upon registration. Annual renewal notices are sent by Revenue Services.

Timing your registration: Register as soon as you start doing business in Sacramento. Don’t wait for revenue — the obligation triggers when business activity begins. A freelancer who starts marketing services in March but doesn’t invoice until May started their business in March.

Home-based businesses: You absolutely need to register for the BOT even if you work from home. Sacramento’s low rates mean the cost is minimal ($30 for most home-based businesses under $10K in receipts), but the obligation exists regardless of location. Many freelancers, consultants, and e-commerce operators in Sacramento work from home — all need BOT registration.

Step 3 — Zoning, Permits, and Planning

Sacramento’s Community Development Department handles zoning, planning approvals, and building permits. The level of permitting you need depends on your business type and location.

Zoning clearance: Verify that your intended business use is permitted at your specific address. Sacramento’s zoning code divides the city into zones with different allowed uses. Check before signing a lease.

Building permits: Required for tenant improvements, signage installation, and structural modifications. The Building Division within Community Development handles these. Even relatively minor renovations to a commercial space may require permits in Sacramento.

Health permits: Issued through the Sacramento County Environmental Management Department (EMD), not the city. Required for restaurants, food trucks, catering, food manufacturing, and any business that handles food for public consumption. EMD inspections are required before opening.

Cannabis businesses: Sacramento has a significant legal cannabis industry. Cannabis businesses are licensed through the Sacramento Cannabis Management division, which operates under the Finance Department. Cannabis licensing is completely separate from the standard BOT — different application, different fees, different regulatory requirements. If you’re entering the cannabis industry in Sacramento, the Cannabis Management division is your starting point, not the general BOT registration.

Fire permits: Certain business types need clearance from the Sacramento Fire Department Prevention Division. This includes businesses using hazardous materials, commercial kitchens, public assembly venues, and businesses in buildings that require fire suppression systems.

Signage permits: If you’re installing business signage — wall signs, freestanding signs, window graphics, or A-frame sidewalk signs — Sacramento requires a sign permit through Community Development. Sign regulations vary by zoning district and may restrict size, height, illumination, and materials. In historic districts like Old Sacramento, signage regulations are particularly specific to maintain the area’s architectural character.

Alcohol licenses: If your business will sell alcohol, you need a license from the California Department of Alcoholic Beverage Control (ABC). ABC licenses are state-level, not city-level, but Sacramento’s zoning code imposes location restrictions on alcohol-serving businesses.

Why Businesses Are Moving to Sacramento

Sacramento’s appeal goes beyond low business taxes. The city has structural advantages that make it increasingly attractive to businesses relocating from the Bay Area and other high-cost California markets.

Cost differential: Commercial rent in Sacramento runs approximately 40-50% less than the San Francisco Bay Area for comparable space. A 1,500 sq ft office that costs $7,500/month in San Jose might cost $3,500-$4,500 in Sacramento. For businesses where physical space is a significant cost line — restaurants, retail, manufacturing, professional offices — this difference changes the profitability equation.

State capital economy: The State of California is Sacramento’s largest employer. Government employment creates a stable consumer economy that doesn’t crash with tech downturns or real estate bubbles. State workers, legislators, lobbyists, and the ecosystem of government-adjacent businesses create consistent demand for services.

Higher education pipeline: UC Davis (approximately 40,000 students) and Sacramento State (approximately 25,000+ students) together produce over 65,000 students worth of talent pipeline. UC Davis’s strength in agriculture, veterinary medicine, and life sciences aligns with Sacramento’s industry base. Sac State feeds directly into the region’s education, healthcare, and government workforces.

Healthcare hub: UC Davis Medical Center, Sutter Health, Dignity Health, and Kaiser Permanente all have major facilities in Sacramento. Healthcare is one of the region’s largest employment sectors, creating demand for medical supply, staffing, facility management, and specialized professional services.

Farm-to-Fork Capital: Sacramento has branded itself as the “Farm-to-Fork Capital of America,” and the food scene backs it up. The city’s proximity to Central Valley agriculture gives restaurants access to some of the freshest produce in the country. The food and restaurant industry has become a genuine economic driver, attracting both culinary entrepreneurs and food tourists. The annual Farm-to-Fork Festival draws tens of thousands of visitors and showcases the region’s agricultural connections. For food entrepreneurs, Sacramento offers something that SF and LA can’t match: direct relationships with nearby farms and a dining culture built on locally sourced ingredients.

Government contracting: As the state capital, Sacramento offers access to government contracts that don’t exist elsewhere in California. The State of California is one of the largest purchasers of goods and services in the country. Small businesses can register as vendors through the Department of General Services and compete for contracts in IT, professional services, construction, office supplies, and dozens of other categories. The city and Sacramento County also have active small business procurement programs. If your business sells products or services that government agencies buy, Sacramento puts you closer to those buyers than any other California city.

Insurance requirements: California requires workers’ compensation insurance for any business with employees. General liability insurance isn’t legally mandated for most businesses but is practically essential — landlords, clients, and partners will expect it. Budget $500-$3,000 per year depending on your industry and coverage needs. Sacramento’s strong local banking sector, including Golden 1 Credit Union (headquartered here), offers competitive business banking and insurance products.

By the numbers:

Population: approximately 530,000 (city), approximately 2.4 million (metro)
Sales tax: 8.75% combined
Key employers: State of California, UC Davis Health, Intel (Folsom), Blue Diamond Growers, Sacramento Municipal Utility District (SMUD)

Small business resources:

Sacramento Small Business Development Center (SBDC): free business advising and workshops
SCORE Sacramento: free mentoring from experienced business owners
Greater Sacramento Economic Council: economic development, relocation assistance, and industry data

Total Startup Costs

Sacramento offers the lowest total government startup cost among major California cities.

State costs:

Item	Cost
SOS filing (Articles of Organization)	$70
Statement of Information	$20
Franchise tax (FTB)	$800/year
EIN	Free
State subtotal	$890

City costs (sales and service business, $50K gross receipts):

Item	Cost
BOT: $30 + 0.04% on $40K over threshold	$46
City subtotal	$46

Total first-year government costs: approximately $936 (plus $50-200 for a registered agent service)

For a business under $10K in gross receipts: The city cost is just $30.

For a massive business hitting the cap: $5,000 maximum BOT + $890 state = $5,890. That’s the ceiling, regardless of revenue.

Comparison to other major CA cities:

LA: approximately $1,528 for a solo consultant with $150K revenue
SF: approximately $1,040-1,390 with the registration fee
San Diego: approximately $929
Sacramento: approximately $936 (but scales far more favorably as revenue grows, thanks to the $5,000 cap)

The $5,000 cap is the real differentiator. A Sacramento business doing $10 million in revenue pays $5,000 to the city. The same business in LA could pay tens of thousands depending on classification. That ceiling makes Sacramento uniquely attractive for businesses with high revenue expectations.

Beyond government fees: Sacramento’s lower commercial rents and cost of living compared to the Bay Area mean your non-government startup costs are also lower. A business that needs $200,000 to launch in San Jose might launch for $120,000-$150,000 in Sacramento. That difference in startup capital can mean the difference between bootstrapping successfully and running out of runway.

The remote business opportunity: Sacramento has become a popular base for remote workers who left the Bay Area for more affordable housing. Many of these workers have launched side businesses or gone fully independent. Sacramento gives them a low-tax home base with access to the Bay Area client market — a two-hour drive or a Zoom call away. The BOT’s low rates and the $5,000 cap make Sacramento particularly attractive for businesses that generate revenue from clients in higher-cost cities.

CCPA note: If your Sacramento-based business handles consumer data and meets the CCPA thresholds, the California Consumer Privacy Act applies just as it would in any other California city. Build privacy-compliant practices from the start.

Neighborhoods for business:

Midtown Sacramento: Walkable grid with independent retail, restaurants, and professional offices. The most vibrant commercial district for small businesses. Active BID with enhanced services.
Downtown: Government offices, law firms, lobbying firms, and hospitality businesses serving state workers and visitors. Proximity to the Capitol is the selling point.
East Sacramento: Affluent residential neighborhoods with neighborhood commercial strips. Professional services and boutique retail do well here.
Natomas: Newer development north of downtown with available commercial space at lower rents. Growing residential base.
South Sacramento/Florin: More affordable commercial rents, diverse community, and opportunities to serve an underserved market.
Old Sacramento: Historic waterfront district with tourism focus. Strict architectural guidelines but high foot traffic from visitors.
Arden-Arcade: Just outside city limits (unincorporated Sacramento County) — subject to county regulations, not the Sacramento BOT. Important to know the boundary.
The Handle District / Ice Blocks: Emerging mixed-use development area with modern retail and restaurant spaces. Newer buildings with modern infrastructure at competitive rents relative to Midtown.

Sacramento’s combination of 1991-era business tax rates, the $5,000 annual cap, lower operating costs, and a diversified economy anchored by government, healthcare, and education makes it one of the strongest value propositions for new businesses in California. You won’t get the tech-epicenter branding of San Jose or the cultural cachet of San Francisco, but you’ll get a million-plus metro market, dramatically lower costs, and a city government that — thanks to voters — still charges 1991 prices.