Starting a marine service business in California

Pick a business structure

Sole proprietors and general partnerships don't file formation papers with the state. LLCs and corporations do, through the Secretary of State's bizfile Online. An LLC files Articles of Organization (Form LLC-1, $70) and a Statement of Information (Form LLC-12, $20), due within 90 days of registering and every two years after.^[1][2]

California LLCs also owe an $800 annual tax to the Franchise Tax Board.^[3] A first-year exemption covered only tax years 2021 to 2023, and FTB's own pages aren't consistent about it now, so ask FTB or a tax preparer before counting on any exemption.

File a fictitious business name if you use one

If you trade under a name other than your own legal name (or your entity's registered name), say "Harbor Hull Care", you file a Fictitious Business Name statement with the county clerk where your business is based, within 40 days of starting to use it. You then publish it in a local newspaper once a week for four weeks and file proof. It lasts five years.^[4]

Get an EIN when you need one

A sole proprietor with no employees can use a Social Security number instead of an Employer Identification Number. You need an EIN once you hire, and banks often ask for one for a business account. It's free from the IRS; sites that charge for it are not the IRS.^[5]

Get a business license in each harbor's city

Business licenses (often called business tax certificates) come from the city, or from the county in unincorporated areas. Fees and rules vary. The state's CalGold tool lists the permits for each city and business type, though it doesn't issue them.^[6]

Harbors usually want the license for their city: Long Beach asks for a City of Long Beach license^[7], Ventura Harbor a City of Ventura license^[8], Santa Barbara a City Business Tax Certificate.^[9] A mobile business working three harbors can end up with three city licenses. The vendor requirements table lists what each harbor asks for.

Seller's permit: the 10% parts rule

You need a seller's permit if you sell tangible goods that would normally be subject to sales tax. The permit is free.^[10] For repair businesses, the question is who counts as the seller of the parts you use. Under CDTFA Regulation 1546, a repairer is the retailer of parts and materials (and collects tax on them) if their retail value is more than 10% of the total charge, or if the repairer bills them separately. Otherwise the repairer is the consumer: you pay tax when you buy the parts and don't collect it from the customer.^[11]

Labor follows its own rules. Separately stated repair and installation labor is generally not taxable, but fabrication labor, such as making new custom canvas or cushions, is.^[12]

• A mechanic, electrician, refrigeration tech or canvas shop that bills parts or makes new items will usually need a permit.
• A hull diver who bills labor only, with small parts included and not charged separately, may not. That's our reading of the rule, not a CDTFA ruling.

CDTFA's own self-check, Publication 107, is the authority here.^[13]

Contractor licensing: boats vs docks

California's contractor law covers construction, alteration and repair of buildings, roads, "or other structure, project, development or improvement". It doesn't mention vessels.^[14] The general engineering contractor classification does expressly cover "harbors, docks and wharves, shipyards and ports".^[15]

A maritime attorney writing in The Log concluded in 2015 that people who work on boats don't need a contractor's license, because a boat is personal property.^[16] Work on docks, piers, pilings and dock shore-power wiring is a different matter: that is work on a fixed structure.

For structure work, the minor-work exemption is under $1,000 (labor and materials) from January 1, 2025, and only applies if no permit is needed and you have no employees. Unlicensed people advertising that work must say they are not licensed.^[17]

Workers' comp, helpers and EDD

California employers must carry workers' comp even with one employee. A sole proprietor with no employees doesn't have to cover themselves but can choose to.^[18]

Be careful with helpers you pay as 1099 contractors. Under California's ABC test, a worker is presumed to be an employee unless the business proves all three parts of the test. Calling someone a contractor, or signing a contract that says so, doesn't settle it.^[19]

Register with the EDD as an employer within 15 days of paying more than $100 in wages in a calendar quarter.^[20]

The federal longshore act and recreational boats

The federal Longshore and Harbor Workers' Compensation Act (USL&H) covers many maritime workers. Since 2009 it excludes people employed to repair any recreational vessel, or to take parts of one apart for repair, as long as they are covered by state workers' comp. The 65-foot limit in the same clause applies only to building recreational boats, not repairing them.^[21] "Repair" includes installation, painting and maintenance.^[22]

The exclusion stops at commercial boats. A vessel doesn't count as recreational if, around the time of the work, it was regularly operating as a passenger vessel, routinely in commercial service, or routinely carrying passengers for hire.^[23] If your crew works on charter boats, six-packs, fishing boats or workboats, ask your broker about USL&H coverage.

Startup checklist

Next: insurance, then marina vendor approval.