This guide to the California sales tax will help you understand their tax system and avoid paying penalties due to incorrect filings.
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The California sales tax rate is 7.25%. This includes a base rate of 6% plus a mandatory local rate of 1.25%. Depending on the local sales tax jurisdiction, the total tax rate can be as high as 10.25%.
You can look up the full table of sales tax rates in each city and county in California. Here’s a snippet of the same.
California adjusted the tax rate on other tobacco products (OTP), including vapor products, from 61.74% to 56.32% of the wholesale cost. This change is required to bring the OTP tax rate in line with the effective tax rate on cigarettes. Since April 2017, California's cigarette tax has been a fixed $2.87 per pack of 20. But as average cigarette prices have increased, the effective tax rate has declined, helping maintain the prices.
To calculate California sales tax, you can use the formula:
Sales tax = (base rate + local rate) * purchase price.
For example—if the base rate is 6%, the local rate is 1.25%, and the purchase price is $100, the sales tax would be $7.25.
Businesses that incorrectly file or pay California sales tax can attract penalties of up to 10% of their unpaid tax amount.
The critical difference lies in how the sales tax rate is determined for transactions.
California has a modified origin-based sales tax system.
State, county, and city taxes are based on where the sale originates from. However, district taxes are based on where the buyer is located.
California is not a Streamlined Sales Tax State.
The Streamlined Sales Tax Project (SSTP) aims to simplify sales tax collection across states that adopt its Streamlined Sales and Use Tax Agreement (SSUTA), and California still needs to join the SSTP or implement the SSUTA.
The sales tax nexus is a crucial link between a business and a state, mandating the business to collect and pay sales tax on all the transactions that take place within that state.
A company may reach nexus in California and will require a seller’s permit by
Once you have established a sales tax nexus in California, you are required to register for a sales tax permit and collect and remit sales tax on all of your sales in the state.
To register for sales tax in California, you can visit the California Department of Tax and Fee Administration (CDTFA) website. You will need to provide the following information:
Once you have registered for a sales tax permit, you will be required to collect and remit sales tax on all of your sales in California. You can do this by using a sales tax software program or by manually calculating and remitting the sales tax.
If you are an online seller, you may be required to register for sales tax in California if you meet the following criteria:
There is no cost to register for a sales tax permit in California. However, you may be required to pay a security deposit. This is done to ensure taxes are paid in case of business closure. The amount of security will be determined at the time you apply.
Yes, you need a California seller's permit if you are only a wholesaler. Wholesalers are required to collect sales tax on all sales of tangible personal property that are made to retailers or consumers in California.
Yes, you need a California seller's permit if you only sell temporarily in the state. If you sell tangible personal property in California for more than 90 days in a calendar year, you are required to register for a seller's permit and collect sales tax on all of your sales.
Here’s a list of items that are taxable in California.
The following are some exemptions from sales tax in California:
You can find some partial exemptions on diesel, farm equipment, and others.
Groceries are exempt from sales tax in California. This includes both unprepared and prepared foods. However, there are a few exceptions to this rule. For example, candy, soft drinks, and prepared foods that are served in restaurants are taxable.
Clothing is taxable in California, with the exception of certain items, such as underwear, socks, and footwear. This includes both new and used clothing.
Digital products, such as software, music, and movies, are non-taxable in California. This includes both products that are downloaded and products that are streamed.
Software-as-a-service (SaaS) is non-taxable in California. SaaS is a type of software that is delivered over the internet and is accessed on a subscription basis.
Many services are taxable in California. This includes services such as restaurant meals, haircuts, car repairs, dry cleaning, hotel stays, rental cars, and tickets to sporting events and concerts. However, there are some services that are exempt from sales tax, such as medical services and financial services.
Excise taxes are taxes levied on specific goods or services. Discretionary taxes are taxes that are imposed by local governments, and the rates can vary from city to city.
California does not have a general sales tax on food and beverages. However, there are excise taxes on some specific items:
Remote sellers, or sellers who do not have a physical presence in California, are required to collect sales tax on sales made to California residents if their sales exceed a certain threshold. The threshold is $500,000 in annual sales for most remote sellers.
California require that all fuel products sold in the state prepay the sales tax. The prepaid sales tax rate for fuel products ranges from 8 cents per gallon for motor vehicle fuel (gasoline)
In addition to the state excise taxes and use taxes, local governments in California can also impose discretionary taxes. These taxes are typically imposed on sales of goods and services within the local jurisdiction.
The rates of discretionary taxes can vary from city to city. For example, the city of San Francisco imposes an 8.625% sales tax on all retail sales, while the city of Los Angeles imposes a 9.5% sales tax.
Let’s look at the steps to collect sales tax in California now.
Even if you do not have a physical presence in the state, you must register with CDTFA if you’re considered "engaged in business" in California. You can voluntarily register to collect and pay use tax for your California customers.
There are 5 common ways to be considered as “engaged in business”:
There are specific rules for convention shows, voluntary disclosure, prepaid mobile services, California Tire Fee, and more.
You can register for a seller’s permit online using CDTFA’s online registration services. Once you obtain the seller’s permit in California, you are free to do business in the state and begin collecting sales tax even if you’re not physically based in California.
The California Department of Tax and Fee Administration (CDTFA) provides specific guidelines on applying sales tax to delivery-related charges.
For delivery charges to be non-taxable, the shipment must go directly to the purchaser via common carrier, contract carrier, or US Mail. The invoice should clearly list the delivery, shipping, freight, or postage as a separate charge that does not exceed the actual delivery cost to the customer. However, if records are not maintained showing the actual delivery cost, the charge becomes taxable.
Delivery charges are partially taxable if the conditions above are met, except if the charge to the customer is higher than the actual shipping cost. They are also partially taxable if there is a combined "shipping and handling" or "postage and handling" charge.
Delivery charges are fully taxable if records of actual delivery costs are not kept if the seller uses their own vehicles for delivery if there are separate fuel surcharges or "handling" fees if the charge is built into the item's price, if it represents shipping costs to the seller's place of business, or if the sales agreement specifies delivery is included in the overall price.
Sales taxes are collected by businesses on the sale of goods and services. Businesses then remit those taxes to the state government. The frequency with which businesses need to file and pay sales taxes varies by state.
Businesses in California must register with the California Department of Tax and Fee Administration (CDTFA) before they can start collecting sales tax.
Once registered, businesses will be assigned a filing frequency and due dates. Businesses can file their sales tax returns online, by mail, or by fax. Payments can be made by check, or money order, credit card, or electronic funds transfer.
The CDTFA assigns a filing frequency to businesses based on their anticipated taxable sales. This schedule is either monthly, quarterly, or annually.
The following due dates apply to California sales tax returns.
The due date is noted for each period for monthly, quarterly, and annual reporters. If a due date falls on a Saturday, Sunday, or legal holiday, then the return is due the following business day.
Monthly: Due the last day of the month following the reporting period month.
Quarterly: April 30th, July 31st, October 31st, and January 31st for the prior quarter.
Annual:
Businesses that fail to file their sales tax returns on time may be subject to penalties. The penalties are based on the amount of tax due and the number of days late.
For late filings or incorrect tax filings, the state charges a 10% penalty on the amount of tax owed.
The due date for filing returns in California is the last day of the month following the period end date.
For instance, if you file quarterly and the filing period ends on March 30, your return filing due date will be April 31.
Similarly, for yearly billing where the filing period ends on December 31s, you can file your taxes by January 31.
The due dates for filing sales tax returns in California vary depending on the filing frequency. For quarterly filers, the due dates are:
Yes, you still need to file a sales tax return even if you didn't collect any sales tax. This is because you may be eligible for a refund.
Yes, you can request an extension to file your California sales tax return. However, you must submit a request for an extension no later than one month after the due date of your return or prepayment form and payment.
Yes, you can file an amended return in California. You need to pay any additional tax that may have been missed along with the interest or penalties that the state requires you to pay.
California has a 10% penalty for late filing or incorrect filings. An additional penalty of 10% may apply if you do not file by the due date. However, the total penalty will not exceed 10% of your tax amount during the period.
The audit & appeals process is a series of steps that a business must go through if they are audited by the California Department of Tax and Fee Administration (CDTFA). The process begins with the auditor contacting the business to schedule an audit.
The auditor will then review the business's records and tax returns to determine if any sales tax was not paid. If the auditor finds any discrepancies, they will issue a report with their findings.
The business then has the opportunity to appeal the findings to the CDTFA. If the appeal is denied, the business can then appeal to the California Superior Court.
The California sales tax audit process is as follows:
During a California sales tax audit under the Managed Audit Program (MAP), you can expect the following:
Contesting audit findings with the auditor in the California Department of Tax and Fee Administration's (CDTFA) Managed Audit Program involves:
The process is collaborative and transparent helping each of the involved parties know and keep track of progress end-to-end.
Registering for sales tax in California is a simple online process.
For sales tax filing and appeals in California, you would be required to contact:
There you have it—an in-depth guide on NY’s sales tax for ecommerce companies. Also, in case you need someone to deal with the sales tax fiasco, Numeral can lend a hand. We have done this for the likes of immi and Amberjack and would be delighted to help you folks as well.
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