Like most states, California charges a sales tax on goods and merchandise. As a business operating in California—or operating out of state and selling goods in California—you should know your tax requirements to avoid any penalties or fees.
What Is the California Sales and Use Tax For?
California charges a sales tax on all retail sales of goods and merchandise, except sales exempted explicitly by law. Storage, use, or consumption of goods in California generally falls under the use tax. If you order merchandise from another state and it ships to California, it may also be subject to use tax.
The statewide sales tax in California is 7.25%. Local jurisdictions and districts are allowed to add supplemental sales taxes, ranging from 0.10% to 1%. The responsibility for reporting and paying local taxes in California rests on sellers. You can find local tax rates for cities and counties on the California Department of Tax and Fee Administration (CDTFA) website.
Who Pays Sales and Use Tax in California?
Retailers selling goods and merchandise in California must register with the CDTFA and obtain a seller's permit. Sellers are responsible for charging both state tax rate and local tax rate on all sales.
Some buyers are exempt from paying sales tax, such as government agencies, nonprofit organizations, and merchants purchasing goods for resale. Other categories of goods are exempt from sales tax as well, such as grocery food, some machinery for manufacturing, medical devices and services, and some software and digital products.
California Sales and Use Tax for Personal Use
Usually, sellers will charge the appropriate tax at purchase, so buyers don't have to worry about paying the right tax rate. However, in some instances, buyers should be aware of the California tax rate and ensure they've paid correctly. An example would be purchasing an item online that ships from another state. As a buyer, you would need to verify that you paid the correct California tax amount on that item. Individuals can make sales tax payments on their yearly state income tax forms or by paying the CDTFA directly.
California Sales and Use Tax for Business Use
Businesses that purchase goods and merchandise from retailers outside California must pay use tax if the seller doesn't charge it, or if they use, give away, store, or consume the item in California. When calculating sales and use tax on purchase items, businesses should apply their local tax rate. Businesses that must report and pay sales tax directly to the CDTFA include:
- Businesses with a California seller's permit
- Businesses that don't have a seller's permit but receive at least $100,000 in annual gross receipts
- Businesses with a California consumer use tax account
Questions About California Sales and Use Tax?
Adhering to the CDTFA's rules on sales and use tax keeps your business out of tax trouble. If you have questions concerning sales tax in California and how it applies to you, contact a California Tax Attorney today.