Where you live can change how much you keep when you sell a business. In a top-rate example, $10 million of taxable gain leaves $6.29 million after tax in California and $7.62 million in Florida. The gap is $1.33 million.
That is a planning example, not an exact tax bill. Your tax basis, deal terms, income, and state residency can change the result. For founders, those details deserve as much attention as the sale price.
Income Tax by State on a Business Sale
Start with taxable gain. A $10 million sale does not always create a $10 million gain. In a simple example, $10 million of proceeds minus $2 million of adjusted tax basis leaves $8 million of gain, before selling costs or other adjustments. IRS capital gains guidance explains the difference.
The comparison below uses $10 million of long-term capital gain. It applies the same federal assumptions in both states so you can see the state tax gap.
- The full gain faces a 20% federal capital gains rate and the 3.8% Net Investment Income Tax, or NIIT.
- California applies its combined top marginal rate of 13.3%. Florida applies no individual income tax.
- This treats the gain as added income after other income has filled the lower brackets and crossed the relevant tax thresholds.
- There is no ordinary-income portion, special capital gains rate, qualified small business stock exclusion, or tax deferral.
- Local taxes, deductions, credits, entity-level taxes, and any tax owed to another state are excluded. All gain is recognized in one year.
| Top-Rate Illustration | California | Florida |
|---|---|---|
| Long-Term Taxable Gain | $10.00M | $10.00M |
| Federal Tax at 23.8% | $2.38M | $2.38M |
| State Rate Applied | 13.3% | 0% |
| Modeled State Tax | $1.33M | $0 |
| Modeled Total Tax | $3.71M | $2.38M |
| Gain After Modeled Tax | $6.29M | $7.62M |
| Combined Rate Applied | 37.1% | 23.8% |
These are modeled taxes on the gain, not the seller’s total annual taxes. If the gain is the seller’s only income, applying the top rates to every dollar overstates the tax. Lower brackets and NIIT thresholds must be included in an actual return.
California taxes capital gains as ordinary income. Its top regular rate is 12.3%, plus a 1% Behavioral Health Services Tax on taxable income above $1 million. That does not make 13.3% a flat tax on all income. See the FTB tax instructions. Florida has no personal income tax.
Why Your Federal Tax May Be Lower
The 23.8% federal figure is a common planning rate. It is not automatic for every founder.
NIIT is 3.8% of the smaller of net investment income or the amount by which modified adjusted gross income exceeds the filing-status threshold. That threshold is $200,000 for single filers and $250,000 for married couples filing jointly. The IRS NIIT guide explains the calculation.
If you actively work in a business taxed as a partnership or S corporation, some gain on selling your interest may fall outside NIIT. The adjustment depends on the business and its assets. The Form 8960 instructions cover these rules. An LLC label alone does not tell you how the sale is taxed.
An asset sale also needs a closer look. Inventory, receivables, and some depreciation recapture can create ordinary income. A partnership-interest sale can have an ordinary-income portion too. The IRS explains these distinctions in its guides to selling a business and partnerships.
Ask for a tax estimate based on what the buyer is buying. A stock sale, an LLC interest sale, and an asset sale can produce different tax bills at the same price.
Other States Have Important Exceptions
Ohio
Ohio’s 2026 marginal rate on taxable nonbusiness income is 2.75%. Using that rate on the full $10 million gives a rough state-tax figure of $275,000. But the actual schedule is $332 plus 2.75% of income above $26,050. On a $10 million nonbusiness tax base, that is about $274,616 before credits. Ohio’s tax-rate law also keeps a separate 3% rate for taxable business income.
Do not assume every founder’s gain belongs in the 2.75% category. Business-income treatment and deductions can change the result.
Starting in tax year 2026, Ohio also offers a deduction for certain business-sale gains. The business must meet five-year Ohio organization or registration and headquarters tests. The seller must meet a five-year material-participation test or a qualifying venture-investment test. The deduction is limited to the smaller of the qualifying gain or qualifying payroll multiplied by the ownership percentage sold. Living in Ohio alone does not qualify you.
Washington
Washington is not a zero-tax state for a large business gain. Its capital gains tax applies at 7% to the first $1 million of taxable Washington capital gains and 9.9% above that amount. Deductions and exemptions matter, including rules for some family-owned businesses. Use the taxable state amount, not the sale price.
Missouri
Missouri still has an individual income tax, but it allows individuals to subtract 100% of federally reported capital gains starting with tax year 2025. Its capital gains subtraction FAQ explains the rules. Ordinary income from a sale does not become capital gain just because it came from selling a business.
Can Moving Before a Sale Reduce the Tax
Yes, a real move can reduce tax on some gains. But a new mailing address cannot settle where you owe tax.
Two questions matter: Where are you a tax resident, and which state can tax the income because of its source? Moving can change the first answer without changing the second.
Residency Depends on How You Live
Domicile means your permanent home. Tax residency also depends on each state’s rules. California considers whether your time inside or outside the state is temporary and where you have the closest ties. It does not use a simple 183-day rule that guarantees nonresident status. The FTB residency guide explains its tests.
Your homes, family, work, and travel records help show where you live. A driver’s license or voter registration supports the facts; it does not replace them. Keeping a business in California does not, by itself, prove that you personally remain a resident.
There is no universal rule requiring a move 18 or 24 months before a sale. Nor must every move happen in the prior calendar year. Start planning early so an adviser can review the timing and your actual ties. A rushed move can leave more facts to dispute.
The Old State May Still Tax Some Income
California generally taxes a resident’s worldwide income and a nonresident’s California-source income. Gains on stock and other intangible property generally follow residency, but exceptions apply. Partnership interests, business assets, and special deal structures require a separate review. See the FTB guide for people who change residency.
California real estate does not stop being California property when its owner moves to Florida. Selling assets used by a business in the old state can also leave a state tax bill. Installment payments and income earned before the move need their own timing analysis.
When Moving May Be a Bad Trade
A tax saving should fit your life and the likely deal. Before moving, weigh these costs:
- The cost of housing, travel, and moving your household.
- The effect on your spouse, children, work, and support network.
- The chance that the sale falls through or the price changes.
- Taxes the old state can still collect, plus other taxes in the new state.
The $1.33 million gap in the table is worth studying. It is not a promise that moving saves $1.33 million. You need the tax estimate for your deal before you can price the move.
Run the Numbers Before You Agree to the Deal
Bring your CPA the proposed price, tax basis, ownership details, and deal structure before signing a letter of intent or term sheet. Ask for three estimates:
- Federal tax on the actual mix of capital gain and ordinary income, including whether NIIT applies.
- State and local tax if you stay, including deductions or exclusions you qualify for.
- State and local tax after a valid move, including income the old state can still tax.
Compare what you would keep under each case. Then weigh the tax savings against the cost of moving and the life you want after the sale.
This article provides general information, not personal tax advice. Residency and business-sale taxes depend on the facts. Have a CPA or tax attorney review your transaction before acting.