# California Contractor Taxes and Licensing Guide

Installation labor on a California construction job is generally not taxed. The CDTFA treats contractors as the consumers of the materials they use, so you pay tax when you buy them. Fixtures are different: you're the retailer, so tax applies to their selling price. Most contractors need a seller's permit and a CSLB license.

## Key takeaways

- Materials: you're the end consumer and pay sales or use tax on your cost. Fixtures: you're the retailer and tax applies to the selling price.
- Most contractors need a CDTFA seller's permit. Those without one who gross $100,000 or more a year must open a Consumer Use Tax Account.
- A CSLB license is required on jobs of $1,000 or more, and on smaller jobs that need a permit or use any workers (effective Jan. 1, 2025).
- The contractor license bond is $25,000. LLCs and corporations owe FTB an $800 annual or minimum franchise tax.
- Every employer needs workers' comp. Roofers (C-39) and a few other classes need it even with no employees, and CSLB says all licensees will by Jan. 1, 2028.

## Do California contractors charge sales tax on labor?

Generally no. California splits a job into two kinds of goods, and labor sits outside both. The California Department of Tax and Fee Administration (CDTFA) says contractors are the "consumers of materials they use" and the "retailers of fixtures that they provide and install." Materials are things like lumber, drywall, concrete and wire that lose their identity in the building. Fixtures keep their identity, like a water heater, a sink or a furnace.

So the tax lands in two places. On materials, you pay it to your supplier when you buy, and that cost gets built into your price. On fixtures, tax is figured on what you charge the customer for the fixture. Installation labor is not part of either. That's a big contrast with [Washington](https://www.brix.so/taxes/washington), where the whole contract price is taxed.

How you write the contract changes the paperwork. CDTFA describes three common types: lump-sum (you "provide and install materials and/or fixtures for a single price"), time and material (installation or fabrication billed separately from materials and fixtures), and cost plus a fee, where "you separately state a fee, which is considered to represent nontaxable installation labor." Machinery and equipment contracts are another case: CDTFA says tax applies to the total contract price, excluding installation labor. Our [labor vs. materials guide](https://www.brix.so/learn/sales-tax-on-labor-vs-materials) lines these models up across states.

> **Example (illustrative numbers): a $9,000 kitchen job**
>
> Say you buy $2,500 in cabinets, drywall and trim (materials) and install a $1,200 range hood and a $600 faucet set (fixtures). Your labor is $4,700.
>
> You pay tax on the $2,500 of materials at the supply house, at whatever rate applies there. You don't add sales tax to the customer's bill for those materials or for the $4,700 of labor. The $1,800 of fixtures is a retail sale by you, so tax is figured on what you charge for them. Exact treatment depends on your contract type, so check CDTFA's guide before you build an invoice template.

## Do I need a seller's permit, and when is use tax due?

CDTFA says "most construction contractors are required to register with the CDTFA for a seller's permit." It lists three exceptions: you work only on contracts with the United States Government, you're a general contractor who hires subcontractors exclusively, or you "exclusively furnish and install materials under lump-sum contracts." On federal contracts, CDTFA says "you owe tax on your cost of materials and fixtures."

- **Out-of-state buys.** Use tax "is due whenever you purchase taxable items without payment of California sales tax from an out-of-state vendor." That covers a tool or fixture ordered online from a seller that didn't charge California tax.
- **No seller's permit?** If your gross receipts are $100,000 or more a year, CDTFA says you must register for a Consumer Use Tax Account so you have somewhere to report that use tax.
- **The rate.** CDTFA lists the statewide rate as 7.25%. Most areas add district taxes, which CDTFA says range from 0.10% to 2.00%, and some areas stack more than one. CDTFA's current city and county tables show rates effective October 1, 2026.

Keep the receipts that show tax paid on materials. If an auditor can't see it, they can assess use tax on the purchase. Our [use tax for contractors](https://www.brix.so/learn/use-tax-for-contractors) guide walks through how that reporting works.

## What CSLB license do I need, and when?

California licenses contractors through the Contractors State License Board (CSLB), and it licenses by classification. CSLB Industry Bulletin #24-07 says that starting January 1, 2025, AB 2622 raised the minor work exemption from $500 to $1,000, "but there is a catch: the work cannot require a permit, and the unlicensed person cannot employ anyone for the project." Go over $1,000, pull a permit, or bring a helper, and you need a license. See the [contractor license guide](https://www.brix.so/learn/contractor-license) for how California compares.

**Common CSLB classifications and related credentials (checked 2026-10-19)**

| Trade | Agency | Credential | Link |
| --- | --- | --- | --- |
| General building or remodeling | CSLB | B General Building Contractor or B-2 Residential Remodeling Contractor. Class A is General Engineering Contractor. | [CSLB classifications](https://www.cslb.ca.gov/About_Us/Library/Licensing_Classifications/) |
| Electrical | CSLB, plus DIR for workers | C-10 Electrical Contractor. DIR says certification applies to "electricians who work for a contractor with a class C-10 license." | [DIR electrician certification](https://www.dir.ca.gov/dlse/ecu/elecat.html) |
| Plumbing | CSLB | C-36 Plumbing Contractor | [CSLB classifications](https://www.cslb.ca.gov/About_Us/Library/Licensing_Classifications/) |
| HVAC | CSLB | C-20 Warm-Air Heating, Ventilating and Air-Conditioning Contractor | [CSLB classifications](https://www.cslb.ca.gov/About_Us/Library/Licensing_Classifications/) |
| Roofing | CSLB | C-39 Roofing Contractor. Workers' comp is required even with no employees. | [CSLB classifications](https://www.cslb.ca.gov/About_Us/Library/Licensing_Classifications/) |
| All classifications | CSLB | $25,000 contractor's bond (increased Jan. 1, 2023, under SB 607). A $25,000 bond of qualifying individual applies when a qualifying RME, or an RMO who owns less than 10% of the voting stock, qualifies the license. | [CSLB bond requirements](https://cslb.ca.gov/Contractors/Maintain_License/Bond_Information/Bond_Requirements.aspx) |

_CSLB has many more specialty (C) classifications. Your city or county may also require a business license. Other state agencies license some trades, so check with the agency for yours._

## What state income and franchise tax applies to a California contractor?

The Franchise Tax Board (FTB) handles income tax. If you run as a sole proprietor, your profit lands on your personal return. FTB says you generally must make estimated payments if you expect to owe at least $500 ($250 if married/RDP filing separately) and your withholding and credits fall short. The split isn't even like the federal one:

**FTB estimated tax schedule for individuals, tax year 2026 (FTB site, checked 2026-10-19)**

| Payment | Share of the year's estimate | Due date |
| --- | --- | --- |
| 1 | 30% | April 15, 2026 |
| 2 | 40% | June 15, 2026 |
| 3 | 0% | September 15, 2026 |
| 4 | 30% | January 15, 2027 |

_FTB adds a limit for higher earners: if prior-year California AGI was over $150,000 ($75,000 married/RDP filing separately), you base estimates on the lesser of 90% of this year's tax or 110% of last year's._

- **LLCs.** FTB says "every LLC that is doing business or organized in California must pay an annual tax of $800." An LLC making more than $250,000 also owes an LLC fee, estimated and paid by the 15th day of the 6th month of the tax year.
- **Corporations.** FTB says every corporation incorporated, registered or doing business in California "must pay the $800 minimum franchise tax." Newly incorporated or qualified corporations on or after January 1, 2020, don't owe it in their first taxable year.
- **Planning.** Run your federal number through the [quarterly estimated tax calculator](https://www.brix.so/tools/quarterly-estimated-tax-calculator), then work out the state piece with your CPA.

## Who needs workers' comp in California?

The Department of Industrial Relations (DIR) says "California employers are required by law to have workers' compensation insurance, even if they have only one employee." You can buy it from a licensed insurance company or from the State Compensation Insurance Fund (State Fund), which DIR describes as a non-profit that competes with private carriers. Self-insurance requires state approval, a net worth of at least $5 million and other conditions.

Some trades can't skip it even as a one-person shop. CSLB's bulletin on SB 1455 says the rule requiring comp for all licensees, with or without employees, was delayed from January 1, 2026, to January 1, 2028. Until then, licensees in all trades except C-39, C-8, C-20, C-22 and D-49 can keep claiming an exemption if they have no employees. Our [workers' comp guide](https://www.brix.so/learn/workers-compensation) explains how premium is figured.

## Local taxes and the rest of the checklist

- **District taxes.** Rates vary by city and county and CDTFA updates its tables, so check the current rate before you price fixtures.
- **City business licenses.** Your city or county may require its own business license or tax. Ask the city where your shop is.
- **Getting paid.** Read up on [mechanics liens](https://www.brix.so/learn/mechanics-lien) and California's notice steps before the job starts, not after a missed payment.
- **Next door.** [Oregon](https://www.brix.so/taxes/oregon) and [Nevada](https://www.brix.so/taxes/nevada) have their own tax and licensing rules, so read their pages before taking work across the line.

> **Not tax advice**
>
> This is a summary of CDTFA, CSLB, FTB and DIR guidance as of the date shown, not tax or legal advice. Your contract types and entity change the answer. Check with the agencies or a California CPA who works with contractors.

BRIX sorts your receipts and expenses, tracks sales tax and 1099 subs, and reminds you before estimated tax dates, so your CPA gets clean numbers. Invoices and payments sync to QuickBooks. BRIX doesn't file taxes or give tax advice.

- [Bookkeeping and tax help](https://www.brix.so/features/bookkeeping-taxes): Keeps expenses categorized, tracks 1099 subcontractors and sales tax, and reminds you of quarterly estimated tax dates. BRIX does not file taxes or give tax advice.
- [QuickBooks sync](https://www.brix.so/integrations/quickbooks): Syncs customers, invoices and payments with QuickBooks so the books match the jobs.

## Frequently asked questions

### Is installation labor taxable in California?

Generally not. CDTFA treats contractors as consumers of materials and retailers of fixtures, and installation labor is neither. On a cost-plus contract, CDTFA says a separately stated fee is considered nontaxable installation labor.

### Who pays the sales tax on construction materials in California?

You do. CDTFA says contractors are the consumers of the materials they use, so you pay tax when you buy them and work that cost into your price. If an out-of-state seller didn't charge California tax, you owe use tax instead.

### Do I need a seller's permit as a contractor?

Most contractors do, according to CDTFA. Exceptions include working only on U.S. Government contracts, hiring subcontractors exclusively as a general contractor, or exclusively furnishing and installing materials under lump-sum contracts. Without a permit, you need a Consumer Use Tax Account if gross receipts reach $100,000 a year.

### Can I do small jobs in California without a license?

Only under $1,000, and only if the job needs no permit and you hire no one to help. CSLB says that limit took effect January 1, 2025, under AB 2622. Unlicensed people advertising for that work must say in the ad that they aren't licensed.

### How much is the California contractor bond?

The contractor's bond is $25,000, an amount CSLB says took effect January 1, 2023. A separate $25,000 bond of qualifying individual applies in some cases, such as when a responsible managing employee qualifies the license.

### Does my California LLC owe tax if it made no money?

Usually yes. FTB says every LLC doing business or organized in California must pay an $800 annual tax. An LLC making more than $250,000 also owes an LLC fee on top of that.

### Do I need workers' comp with no employees in California?

It depends on your classification. Roofers (C-39) and the C-8, C-20, C-22 and D-49 classes must carry it now. CSLB says the requirement for every licensee is delayed until January 1, 2028.

## Related

- [Do Contractors Charge Sales Tax on Labor or Materials?](https://www.brix.so/learn/sales-tax-on-labor-vs-materials)
- [What Is Use Tax for Contractors?](https://www.brix.so/learn/use-tax-for-contractors)
- [What Is a Contractor License?](https://www.brix.so/learn/contractor-license)
- [What Is Workers' Compensation Insurance?](https://www.brix.so/learn/workers-compensation)
- [What Is a Mechanic's Lien?](https://www.brix.so/learn/mechanics-lien)
- [Quarterly Estimated Tax Calculator for Self-Employed Contractors (2026)](https://www.brix.so/tools/quarterly-estimated-tax-calculator)
- [Oregon Contractor Taxes and Licensing Guide](https://www.brix.so/taxes/oregon)
- [Nevada Contractor Taxes and Licensing Guide](https://www.brix.so/taxes/nevada)
- [Washington Contractor Taxes and Licensing Guide](https://www.brix.so/taxes/washington)
- [Self-Employment Tax Calculator (2026)](https://www.brix.so/tools/self-employment-tax-calculator)

## Sources

- [CDTFA, Tax Guide for Construction Contractors: industry topics (materials vs. fixtures, contract types, seller's permit, use tax, Consumer Use Tax Account)](https://cdtfa.ca.gov/industry/construction-contractors/industry-topics.htm) (checked 2026-10-19)
- [CDTFA, Sales and use tax rates (7.25% statewide; district taxes; rates effective Oct. 1, 2026)](https://cdtfa.ca.gov/taxes-and-fees/sales-use-tax-rates.htm) (checked 2026-10-19)
- [CSLB Industry Bulletin #24-07, License Requirement for Minor Work Increases from $500 to $1,000 (Dec. 31, 2024)](https://www.cslb.ca.gov/Resources/IndustryBulletins/2024/AB%202622%20Implementation.FINAL.pdf) (checked 2026-10-19)
- [CSLB, Bond requirements ($25,000 contractor's bond and bond of qualifying individual)](https://cslb.ca.gov/Contractors/Maintain_License/Bond_Information/Bond_Requirements.aspx) (checked 2026-10-19)
- [CSLB, Licensing classifications](https://www.cslb.ca.gov/About_Us/Library/Licensing_Classifications/) (checked 2026-10-19)
- [CSLB Industry Bulletin, New Law Changes in 2025 (SB 1455 workers' comp delay to Jan. 1, 2028)](https://www.cslb.ca.gov/Resources/IndustryBulletins/2024/SB%201455%20changes.FINAL.pdf) (checked 2026-10-19)
- [California DIR, Electrician certification: who needs to be certified](https://www.dir.ca.gov/dlse/ecu/elecat.html) (checked 2026-10-19)
- [FTB, Limited liability company ($800 annual tax; LLC fee)](https://www.ftb.ca.gov/file/business/types/limited-liability-company/index.html) (checked 2026-10-19)
- [FTB, Corporations ($800 minimum franchise tax; first-year exception)](https://www.ftb.ca.gov/file/business/types/corporations/index.html) (checked 2026-10-19)
- [FTB, Estimated tax payments (thresholds and 2026 due dates)](https://www.ftb.ca.gov/pay/estimated-tax-payments.html) (checked 2026-10-19)
- [California DIR, Division of Workers' Compensation, Employer information](https://www.dir.ca.gov/dwc/Employer.htm) (checked 2026-10-19)
- [California DIR, DWC FAQs for employers (insurance options, State Fund, self-insurance)](https://www.dir.ca.gov/dwc/faqs.html) (checked 2026-10-19)

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Written by BRIX Editorial Team. Last updated 2026-10-19. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/taxes/california