E-commerce sales are taxable in California. But this doesn’t mean that all online sellers must collect sales tax on every transaction involving a California customer.
| E-commerce Taxable | |
|---|---|
| Economic Nexus | |
| Confused? | Talk to us -> |
| Sales | $500,000 |
|---|---|
| Transactions | N/A |
| Physical? |
| California | 7.25% |
|---|---|
| Average Total Rate | 8.85% |
| Local Rates Apply |
To be subject to California's sales tax requirements, a company must have economic or physical nexus in the state (more on nexus later). The type of product or service the company sells must also be taxable — which isn't always the case, as some types of products and services aren't taxed, including, in most cases, digital goods.
Sales tax compliance is complicated in California, with many rules and taxability classifications to keep track of. This guide will explain everything that e-commerce sellers need to know, and it will offer tips on how to make complying with your tax obligations simpler.
The California Department of Tax and Fee Administration (CDTFA) states that "Internet sales are treated just like sales made at retail stores, by sales representatives, over the telephone, or by mail order. Therefore, your retail Internet sales that take place in California, or are for delivery in California, are generally subject to California sales or use tax, unless a specific exemption or exclusion applies."
The CDTFA also makes clear that "in general, California sales and use taxes are imposed on the retail sale or use of tangible personal property in this state." This means that whether you run an e-commerce store or a local store, your sales of tangible personal property are probably taxable in the Golden State.
California differs from many other states in that it generally does not tax services and other intangible products, unless they are an integral part of the transfer of taxable property. Digital goods like e-books and streaming content are typically not taxed in the state on this basis. SaaS was treated the same way for decades, because allowing customers to access software remotely wasn't considered the same as selling them tangible property, but that changed with SB 122, which makes SaaS taxable in California for sales on or after January 1, 2027.
Not all tangible personal property is subject to tax, as the state exempts specific types of items, such as some foods and certain basic necessities. The state also exempts certain buyers from taxation. For example, government agencies, nonprofits, and schools are not required to pay sales tax, so you don't have to collect and remit tax on sales to those types of customers — although you do need to make sure to have an exemption certificate from the exempt buyer on file.
All these exceptions add another layer of complexity to sales tax compliance for e-commerce companies with customers in California.
And there’s still more to consider: When you’re required to collect and remit sales tax in California, you aren’t just collecting taxes on behalf of the state. There are actually four different jurisdictional sales taxes:
The base statewide tax rate is 7.25%, which includes state and local components. However, individual districts are allowed to set their own rates and make their own rules, and there are some areas in California where multiple tax districts are in effect.
Rates within these special districts range from 0.1% to 1.0% (on top of the statewide 7.25%), and in some cases, the combined state, county, city, and special district taxes could be as high as 10.75%. You can check an online list of tax rates by county to better understand the rate differences and how high the rates can go.
The complications aren't done yet. When revenue departments charge sales tax, the rules are either origin-based or destination-based:
California is considered a modified origin state, as state, county, and city taxes are based on the seller's location, while district taxes are based on the buyer's location.
So when an out-of-state seller sells goods into California, then the buyer's location is the determining factor in which rates apply. That's because an out-of-state seller doesn't have a California origin point where there are local taxing rules to follow
Understanding the basics of California's e-commerce sales tax rules is important, because this will help you determine when your business actually needs to collect tax. The key factors that determine this are:
Here’s how to determine your obligations:
Having nexus means that you have enough of a connection to a jurisdiction, such as a state, that the jurisdiction can require you to follow its sales tax rules. There are two types of nexus: physical and economic
In California, you become obligated to charge sales tax if you have physical nexus. This means you have enough of a physical connection to the state that it has the authority to make you act as a tax collector. You may have physical nexus if you have:
If you meet any of these requirements, you become obligated to follow California's sales tax rules, including registering to collect sales tax, collecting tax on taxable sales, and remitting payments on your required schedule.
Physical nexus was the only type of nexus to keep track of until the Supreme Court made a major change with its decision in a 2018 case called South Dakota v. Wayfair, Inc. In its ruling in this case, the court allowed states to require companies to collect sales tax based on economic nexus.
After the Wayfair decision, states began making rules for economic nexus. These rules centered around the number of transactions or the total volume of sales.
A company establishes economic nexus in California if its total combined sales of tangible personal property to Californians exceed $500,000 during the preceding or current calendar year.
Once your company has nexus, you are required to register to collect sales tax on taxable sales and remit payments, just like companies with a physical presence in California.
Once you have sales tax obligations in California, you must charge tax on taxable products. Remember, this includes tangible personal property unless it is exempt. Some examples of product categories that are tangible but usually exempt are:
California provides a complete list of property that is excluded or exempt from tax, so you can determine whether your tangible personal property falls within an exemption.
It's also worth noting that most digital products remain non-taxable in CA even after a major 2026 change. As the CDTFA has explained, sales of electronic data products such as software, data, digital books (eBooks), mobile applications, and digital images have generally not been taxable when transmitted to a customer over the internet—with an exception for sales that include a printed copy or a backup on physical media, like a flash drive, which made the entire sale taxable.
That rule changes for software specifically. Under SB 122, signed June 29, 2026, prewritten software becomes taxable in California for sales on or after January 1, 2027, regardless of whether it's delivered on physical media, downloaded, or accessed remotely as SaaS. This means that if you sell e-books, mobile app content, or other non-software digital goods, you generally don't have to worry about charging California sales tax. If you sell SaaS or other software, you'll need to start collecting starting January 1, 2027.
The last thing to determine is whether your customers are supposed to be taxed on the transaction. If they are, and if you have nexus and a taxable product, you must collect sales tax. If they are not, then you don't have to, but you must ensure that you have a valid exemption certification on file.
Certain organizations, such as some government agencies, nonprofits, and schools, may qualify for exemptions. For sales to exempt customers, you must obtain valid exemption certificates and keep them on file.
Want to automate this? Check out Numeral's exemption certificate management solution.
Finally, if you sell goods on a marketplace, special rules may apply under marketplace facilitator rules.
California law defines a marketplace as "a physical or electronic place where marketplace sellers sell or offer for sale tangible merchandise for delivery in this state." Marketplaces help make sales possible and, in doing so, become responsible under the law for collecting sales tax on all sales that take place on their platform.
This means, for example, that Amazon, Etsy, and similar sites where you might do business must collect sales tax and remit it on your behalf if you sell a product on their platform. While Shopify is not a marketplace because it doesn't do enough to facilitate sales for retailers, the Shopify Shop app is, so this rule applies there too.
If you are in doubt, you should check with any third-party websites that help with the sale of your product to confirm whether they are covered by marketplace facilitator laws.
Complying with California sales tax laws can be very complicated, as you can see. To summarize, you will need to:
If you fail to meet any of these obligations, you face fines and penalties. But help is available: Numeral can track nexus for you, register you in California and other states as required, collect the right taxes on your behalf, and even handle all tax correspondence for you.
With Numeral's help, you can be audit-ready and stress-free about sales tax in every state in the U.S., as well as in the 90+ countries Numeral operates in.
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California provides many resources to help you succeed in complying with sales and use tax rules. Examples include:
California's tax rules are complicated, but you must remain compliant with them if you are doing business in the Golden State. You don't want to risk fines, penalties, and negative consequences.
Numeral can make compliance easy as it handles everything related to sales tax. In fact, most Numeral customers spend less than five minutes per month taking care of sales tax issues. Contact Numeral today to find out just how easy e-commerce sales tax compliance can be.
The trusted solution for U.S. sales tax, VAT, and GST compliance, used by 3,500+ global businesses.
