That’s not completely true.

Your employer withholds your federal taxes from your paycheck.

The state of California employs a lot of people. The state can intercept those funds, refusing to send them to the IRS. That obviously only affects state employees, but it is feasible.

The state could go on to act as a staffing agency, “hiring” workers whose labor is then contracted to private businesses. The state would then be doing the withholding for their employees, and the business would be contracting with the state.