This guide simplifies California sales tax rules so you can focus on compliance and steer clear of costly penalties for incorrect filings. We aim to help you file accurately, avoid errors and stay compliant with ease.

Sales Tax Overview

California has the highest state-level sales tax rate in the United States. Let's begin with a glimpse of its sales tax system.

Division	Rate
California sales tax rate	7.25%
Base rate	6%
Local rate	1.25%
District tax rate	0.10% - 1.50%
Combined sales tax rate	7.25% - 10.25%

California Sales Tax Rates & Calculations Explained

California's sales tax rates and calculations are a blend of state, county, and local district taxes, resulting in one of the most complex systems in the U.S. The base statewide rate is 7.25%, which includes a 6% state rate and a 1.25% rate allocated to local governments. 

However, many areas impose additional district taxes, causing total rates to range from 7.25% to over 10% in some regions. Sales tax in California is destination-based, meaning the applicable tax rate is determined by the buyer's delivery address. 

Businesses must calculate the total tax by adding the state rate, any applicable county rates, and local district taxes for the specific location of the sale. Ensuring accuracy is critical, as errors can lead to penalties, and staying updated on changing district rates is essential for compliance. 

Automated solutions can simplify these calculations, particularly for businesses dealing with multiple jurisdictions.

How to calculate sales tax in California?

Use the formula below to get the sales tax rate.

Sales tax = (base rate + local rate) * purchase price.

For the purpose of this example, let's say purchase price is $100. Based on the table above base rate is 6% and local rate is 1.25%. With these figures, you can easily calculate the sales tax.

Sales tax = (6% + 1.25%) * $100

Sales tax = $7.25

The cities and counties in California may have different sales tax rates. You may check out the complete list of sales tax rates.

Taxable and Non-Taxable Goods and Services in California

Here's a list of the goods and services that are taxable in California.

Taxable goods and services

1. Tangible Personal Property

• Clothing and apparel
• Electronics (e.g., smartphones, computers)
• Furniture and home goods
• Sporting goods
• Vehicles and automotive parts

2. Prepared Food and Beverages

• Meals at restaurants and fast food establishments
• Hot prepared food (e.g., deli sandwiches)
• Alcoholic beverages

3. Digital Products (in limited cases)

• Physical delivery of software or digital products (depending on delivery format and usage).

4. Services Related to Tangible Goods

• Repair or fabrication services (e.g., fixing a broken phone or custom-made furniture).

5. Luxury and Non-Essential Items

• Jewelry and accessories
• Cosmetics and personal care items

Non-Taxable Items in California

1. Essential Goods

• Groceries and unprepared food (e.g., fruits, vegetables, bread).
• Prescription medications (e.g., antibiotics, insulin).
• Over-the-counter drugs if prescribed by a physician.

2. Services

• Professional services (e.g., legal, accounting, consulting).
• Educational services and training.
• Healthcare services.

3. Certain Utilities

• Water, gas, and electricity (for residential use, though some exceptions may apply).

4. Non-Tangible Digital Goods

• E-books, digital music, and streamed content (if not delivered on a physical medium).

5. Exempt Goods

• Medical devices and equipment (e.g., wheelchairs, crutches).
• Agricultural supplies and products.
• Solar energy systems (qualify for a sales tax exemption).

California's sales tax laws can be complex, and some items may be taxable or exempt depending on their usage or the buyer's status (e.g., nonprofits or government entities). So, consult the California Department of Tax and Fee Administration (CDTFA) for specific details and updates on what is taxable and exempted from sales tax.

California Nexus Rules

Sales tax nexus in California establishes the connection between a business and the state, requiring the business to collect and remit sales tax on taxable sales made to California customers.

Nexus in California is triggered when a business has a sufficient connection to the state, either through physical presence, economic activity, or through facilitating sales via a marketplace. 

Physical presence includes owning property, having employees, or maintaining inventory in California. 

Economic nexus applies to remote sellers meeting specific sales thresholds, and marketplace facilitators are required to collect and remit taxes on behalf of sellers. 

Once nexus is established, the business must register with the California Department of Tax and Fee Administration (CDTFA) to collect and remit sales tax.

Here's an overview of nexus in California.

Nexus Type	Threshold/Condition	Examples
Physical Presence Nexus	Owning property, having employees, or storing inventory.	Office, warehouse, or sales staff operating in California.
Economic Nexus	$500,000 in gross sales to California buyers in a year.	Remote seller exceeding $500,000 in online sales to California customers.
Marketplace Nexus	Sales facilitated through a marketplace reaching economic nexus.	Products sold via platforms like Amazon or Etsy that exceed $500,000.

Sales Tax Registration in California

When a business establishes sales tax nexus in California, it must register with the California Department of Tax and Fee Administration (CDTFA) to legally collect and remit sales tax. Here’s a detailed step-by-step guide to the registration process:

Step 1: Determine Nexus

• Assess Nexus Type
  • Determine whether your business has physical presence, economic, or marketplace nexus in California.
  • Physical presence can include employees, offices, or inventory in California.
  • Economic nexus applies if your gross sales to California exceed $500,000 in the current or previous calendar year.
  • Marketplace facilitators meeting the $500,000 threshold must also register.

Step 2: Gather Required Documentation

Before starting the registration process, collect the following information:

• Business Identification:
  • Federal Employer Identification Number (FEIN) or Social Security Number (SSN) for sole proprietors.
  • Legal business name and DBA (if applicable).
• Contact Information:
  • Business address, phone number, and email.
• Ownership Details:
  • Owner(s) or corporate officer(s) information, including names, titles, and contact details.
• Sales Data:
  • Estimated monthly sales figures for taxable and non-taxable goods or services.
  • Details of past sales to California customers (if applicable).
• Industry-Specific Information:
  • NAICS code (industry classification).
  • Product categories you sell.

Step 3: Register Online

• Visit the CDTFA Online Services Portal (https://onlineservices.cdtfa.ca.gov/).
• Create an account or log in if you already have one.
• Select "Register a New Business Activity or Location."
• Choose the appropriate registration type, such as Seller’s Permit (for retail and wholesale) or other permits for specialized activities.

Step 4: Complete the Application

• Provide your business and personal information as requested.
• Specify the nature of your sales activities, including taxable and non-taxable goods.
• Indicate whether your sales are conducted online, in-person, or through a marketplace facilitator.

Step 5: Submit the Application

• Review all details carefully for accuracy.
• Submit your completed application.

Step 6: Receive Seller’s Permit

• Once approved, you will receive a Seller’s Permit, which authorizes you to collect and remit sales tax in California.
• Keep the permit accessible at your place of business.

Sales Tax Collection and Filing in California

Sales tax collection and filing in California can be complex due to the state’s destination-based sourcing rules and varying tax rates across counties and districts. Businesses that sell taxable goods or services to California customers must collect the appropriate sales tax at the time of sale and remit it to the California Department of Tax and Fee Administration (CDTFA) on a regular schedule.

Here are the steps for collection and filing.

Step 1: Set Up Sales Tax Collection

Configure your sales systems to collect the correct sales tax rate based on the delivery address (destination-based sourcing). Ensure compliance with California’s tax rate updates and filing requirements.

Here’s how sales tax collection works:

Tax Calculation: Businesses must calculate the total sales tax by combining the statewide base rate of 7.25% (6% state tax + 1.25% local tax) with any applicable district taxes specific to the buyer’s location. Total rates can exceed 10% in some regions.

Taxable Transactions: Sales tax applies to the sale of tangible personal property, certain digital products, and some services, while essential goods like groceries and prescription medications are exempt.

Point of Sale Configuration: Businesses must configure their point-of-sale systems to apply the correct tax rate based on the buyer's location, especially for online and remote sales.

Exemptions and Resale Certificates: Sellers should verify exemptions (e.g., nonprofit organizations, government entities) and accept valid resale certificates for tax-free transactions.

Step 2: File Returns and Remit Sales Tax

California businesses are required to file periodic sales tax returns, reporting collected taxes to the CDTFA. Filing frequency depends on the business’s sales volume and is assigned at the time of registration:

• File periodic sales tax returns (monthly, quarterly, or annually) through the CDTFA portal.
• Pay the collected taxes by the designated deadlines to avoid penalties.

Exemptions and Resale Certificates

Exemptions and resale certificates in California play a crucial role in ensuring businesses and consumers are taxed appropriately while avoiding double taxation on goods intended for resale.

Sales Tax Exemptions in California

Certain goods, services, and transactions are exempt from sales tax in California, either fully or under specific conditions. Common exemptions include:

Essential Goods

• Groceries: Most unprepared food items, including fruits, vegetables, and bread, are exempt.
• Prescription Medications: These include drugs prescribed by a licensed physician, insulin, and medical oxygen.

Medical Equipment and Supplies

• Wheelchairs, crutches, and other mobility aids are exempt if prescribed.
• Prosthetics and orthotic devices are also tax-exempt.

Agricultural Products

• Seeds, plants, and fertilizer used to grow food for human consumption.
• Livestock and poultry intended for human consumption.

Nonprofit Organizations

• Qualifying nonprofits may be exempt from sales tax on certain purchases or sales.

Manufacturing and R&D Equipment

• Partial exemptions exist for machinery used in manufacturing, research, and development.

Renewable Energy Equipment

• Solar energy systems and other renewable energy equipment may qualify for exemptions.

Resale Certificates

A resale certificate allows businesses to purchase goods without paying sales tax if those goods are intended for resale. This prevents double taxation, ensuring tax is only collected from the final consumer.

How Resale Certificates Work

1. Issuing a Resale Certificate

• The buyer provides the seller with a completed California Resale Certificate (Form CDTFA-230).
• The certificate must include the buyer's business name, seller's permit number, and a statement confirming the purchase is for resale.

2. Using a Resale Certificate

• Applies only to goods intended for resale in the regular course of business.
• Does not apply to purchases for personal or business use (e.g., office supplies).

3. Seller's Responsibilities

• Verify that the resale certificate is complete and valid.
• Retain copies of resale certificates to prove the exemption in case of an audit.

Remote Seller and Marketplace Facilitator Rules

California’s remote seller and marketplace facilitator rules ensure that businesses, regardless of location, collect and remit sales tax on taxable transactions involving California consumers. These rules are particularly relevant in the age of e-commerce, as they address tax compliance for out-of-state businesses and online platforms facilitating sales.

Remote Seller Rules

Remote sellers are businesses without a physical presence in California that make sales to customers in the state. Following the landmark South Dakota v. Wayfair, Inc. ruling, California implemented economic nexus thresholds to determine when remote sellers are required to collect and remit sales tax.

Economic Nexus Thresholds

• Remote sellers must collect and remit California sales tax if they reach $500,000 or more in cumulative gross sales.
• Physical presence is not required; the economic activity alone establishes nexus.

Tax Collection Process

• Remote sellers must calculate sales tax based on the destination-based sourcing rule, which applies the tax rate of the customer’s delivery location.
• Sellers must register with the California Department of Tax and Fee Administration (CDTFA) to comply with sales tax requirements.

Marketplace Facilitator Rules

Marketplace facilitators are platforms or services that facilitate sales between buyers and sellers, such as Amazon, eBay, or Etsy. California requires these platforms to take on the responsibility of collecting and remitting sales tax on behalf of third-party sellers.

Marketplace Facilitator Requirements

• Facilitators are required to collect and remit sales tax if their gross sales exceed $500,000 annually in California, including their own sales and sales made on behalf of marketplace sellers.
• The obligation to collect tax applies to all taxable sales conducted through the platform, regardless of the individual seller’s nexus status.

Impact on Marketplace Sellers

Sellers using a marketplace facilitator do not need to collect sales tax on transactions facilitated through the platform, as the facilitator handles compliance.

However, sellers must register with the CDTFA and file returns to report non-marketplace sales (e.g., sales through their own website or physical store).

Audits, Penalties, and Appeals in California

California's sales tax system is strictly regulated, and the California Department of Tax and Fee Administration (CDTFA) conducts audits to ensure businesses are complying with state laws. Audits, penalties, and the appeals process are critical components of this system, as they serve to enforce compliance, address disputes, and resolve discrepancies in tax collection and reporting.

Sales Tax Audits

The CDTFA performs audits to verify that businesses have accurately reported and remitted sales tax. Audits may be triggered by various factors, including irregularities in tax returns, frequent late filings, or discrepancies in reported sales. Here’s what to expect during an audit:

Audit Process

1. Notification: The CDTFA notifies the business in writing, specifying the time period under review (usually three years).
2. Initial Meeting: Auditors discuss the scope of the audit and request documentation such as sales records, purchase invoices, exemption certificates, and tax returns.
3. Review: The auditor analyzes the provided records to identify discrepancies or underpayments.
4. Preliminary Findings: The auditor shares initial findings, allowing the business to provide additional clarification or documentation.
5. Final Assessment: The CDTFA issues an audit report detailing any additional taxes owed, penalties, or refunds.
6. Penalties: Failure to comply with California’s sales tax regulations can result in significant penalties and interest charges

Common Penalties

• Late Filing Penalty: 10% of the tax due for filing after the deadline.
• Late Payment Penalty: 10% of the unpaid tax amount, plus daily accruing interest.
• Negligence Penalty: Up to 10% for significant underreporting or filing inaccuracies.
• Fraud Penalty: 25% for intentional tax evasion or fraudulent reporting.

Additional Consequences

• Continued non-compliance may lead to the revocation of a seller's permit.
• Businesses may face legal action or liens on property for unresolved tax liabilities.

Appeals Process

If a business disagrees with the CDTFA's audit findings or assessments, it has the right to appeal. The appeals procedure provides an opportunity to resolve disputes in a formal manner:

Steps in the Appeals Process

1. Request for Reconsideration: File a petition for redetermination within 30 days of receiving the Notice of Determination.
2. Provide Evidence: Submit documentation or arguments supporting your case, such as additional records or proof of compliance.
3. Informal Conference: The CDTFA may hold an informal meeting to discuss the case.
4. Administrative Hearing: If unresolved, the case is escalated to the Office of Tax Appeals (OTA) for a formal hearing.
5. Decision: The OTA issues a binding decision. If the decision is unfavorable, further appeals can be made through the judicial system.

Trends and Legislative Update

California's sales tax landscape is evolving, with recent legislative changes and emerging trends impacting businesses statewide. In 2025, California has implemented 28 local sales tax rate changes across various jurisdictions. These adjustments reflect the state's dynamic approach to addressing fiscal needs at the local level.

How to Reach Out for Help or Concerns?

For sales tax filing, appeals, or questions about sales tax in California, you can reach out to the California Department of Tax and Fee Administration (CDTFA).

You may visit their website:  https://www.cdtfa.ca.gov/ or call them at 1-800-400-7115.

And that’s a wrap on navigating California’s sales tax system. If managing these complexities feels overwhelming, Kintsugi is here to simplify it. Trusted by companies like Gwella, Blossom Lux and Copay Valley Lavender, we specialize in seamless sales tax compliance so you can focus on growing your business. Sign up today or book a demo now.