2024 overview of sales tax in California

Welcome to Kintsugi's rundown on tax rates in the state of California, including an in-depth look at what is the sales tax in California and how the LA sales tax fits into the picture. California's sales tax in CA rates can vary depending on state, county/city, and local tax rates.

The base California state sales tax rate, including CA state sales tax, is 7.25%. Of this, 6% goes to the state, while the remaining 1.25% is distributed among local jurisdictions.

Among counties, Alameda and Los Angeles have some of the highest sales tax at around 10.25%, while more rural counties like Modoc and Lassen have some of the lowest at 7.25%, making the understanding of sales tax Los Angeles crucial for residents and businesses.

For special district taxes, some areas like Mammoth Lakes and Emeryville can reach up to 10.75%, whereas others like certain districts in Nevada County may have lower rates around 7.375%, making it essential to understand what is the sales tax in California for accurate accounting.

Sales tax range in California

Sales tax rates in California vary by locality, determined by combining the state base rate with local district rates such as the sales tax sf ca. As of 2024, California’s base state sales tax rate remains at 7.25%.

The additional local district taxes, including CA county sales tax, the sales tax in Los Angeles, and the sales tax LA, which can drive the overall rate higher, range from 0% to 2.5% or more, depending on the city or county and including the sf county sales tax. For instance, cities such as Los Angeles, which includes the Los Angeles sales tax, the LA County sales tax, and the LA city sales tax, and areas with the San Francisco sales tax have combined rates that can exceed 10%, emphasizing the importance of understanding the specifics of sales tax Los Angeles.

Not all localities experienced changes; many smaller towns and rural areas have seen stable tax rates due to lesser need for district tax adjustments, leading residents to frequently ask, 'how much is sales tax in California for these areas?'.

Key Changes from 2023 to 2024

• Los Angeles saw an increase in its district rates, pushing its overall sales tax rate from 9.5% in 2023 to 10% in 2024 due to the changes in the Los Angeles County sales tax.
• San Francisco maintained its high sales tax rate, remaining stable at 8.625% from 2023 to 2024.
• Sacramento adjusted its district taxes, leading to an overall rate rise from 8.75% in 2023 to 9% in 2024.
• San Diego observed a minor increase, with rates moving from 7.75% in 2023 to 8% in 2024.
• Riverside saw its rates unchanged, maintaining a steady 8.75% from 2023 to 2024.

Calculating California sales tax

Identify the Base Sales Tax Rate

The base state-wide sales tax rate in California is 7.25%.

Determine Local Sales Tax Rates

Local jurisdictions (cities and counties) may impose additional sales tax rates, including the sf sales tax, leading people to often inquire, 'how much is sales tax in California including these local rates such as the sales tax in San Francisco County?'.

Use the California Department of Tax and Fee Administration (CDTFA) website or a CA sales tax calculator to find the specific combined rate for a given location, including the LA County sales tax rate and the specific sales tax of San Francisco, incorporating CA state sales tax.

Calculate Total Sales Tax for Physical Goods

Example Calculation: If a product's price is $100 and the local tax rate is 2%, total rate is 7.25% + 2% = 9.25%.

Multiply $100 by 9.25%: $100 * 0.0925 = $9.25. You can use a CA sales tax calculator to double-check this calculation.

Sales tax: $9.25; Total cost: $100 + $9.25 = $109.25.

E-commerce Sales

State Rate: The base rate of 7.25% still applies.

Destination-Based Tax: Rate depends on the buyer’s delivery address.

Local Taxes: May vary; check the CDTFA database for precise rates.

Software as a Service (SaaS)

SaaS is generally not taxed in California.

Exception: If not "true SaaS", it might be taxable under different classifications.

Digital Products

Digital products such as e-books and music downloads are generally not subject to sales tax in California.

Exception: Some jurisdictions might have specific legislation; check CDTFA guidelines.

Services

Most professional services (legal, accounting, etc.) are not subject to sales tax.

Exception: Some services like vehicle repairs and maintenance could be taxable.

Filing and Remittance

File Sales Tax Returns: Regularly based on your filing frequency (monthly, quarterly, or annually).

Remit Collected Tax: Submit to CDTFA by the due date.

****Use Tax

If goods purchased out-of-state are used within California, use tax may apply.

Rate: Use the same combined rate as you would for sales tax in your location.

Understanding use tax in California

Use tax in California is a tax on purchases made from out-of-state sellers where California sales tax is not collected. This tax, implemented to level the playing field between in-state and out-of-state sellers, applies to individuals, businesses, and organizations.

If you purchase goods from a retailer who isn't required to collect California sales tax, you are responsible for reporting and paying use tax directly to the California Department of Tax and Fee Administration (CDTFA). This is common with purchases made over the internet, through mail-order catalogs, or during travel.

The use tax rate is equivalent to the sales tax rate, including CA state sales tax, in the part of California where the purchased item will be used. For example, if the combined state and local sales tax rate in your location is 8.25%, that is the use tax rate applicable to your purchase.

It is important to note that use tax and sales tax California does not apply to services and rents, only to tangible personal property.

Exemptions from use tax can include items like certain food products, prescription medications, and some sales to the U.S. government. The goal is ensuring that all applicable goods brought into California for use, storage, or consumption are taxed the same as those sold within the state.

To report and pay use tax, individuals typically use line 91 on the California personal income tax return (Form 540), ensuring they comply with the latest regulations regarding what is sales tax in California. Alternatively, businesses registered with the CDTFA must report use tax on their sales and use tax return or on a Consumer Use Tax Return if they're not registered.

Properly managing use tax compliance, possibly using a CA sales tax calculator, can prevent potential penalties and interest from accrued unpaid taxes. The CDTFA provides tools like an online use tax calculator and encourages residents to maintain records of all out-of-state purchases to accurately report their use tax obligations.

Recent changes to California sales tax

In 2024, California saw several changes to its sales tax regulations, aimed at modernizing the system. As compared to 2023:

Statewide Base Sales Tax Rate

Effective January 1, 2024, the statewide base sales tax in CA rate increased from 7.25% to 7.5%.

In 2023, the base rate was 7.25%.

Local District Taxes

Various localities in California, including those affecting the Los Angeles CA sales tax, adjusted their district taxes in 2024.

For instance, the combined sales tax rate in Los Angeles County increased from 9.5% to 9.75%, effective April 1, 2024, highlighting the significant impact of the Los Angeles County sales tax changes.

Digital Goods and Streaming Services

Starting July 1, 2024, digital goods and streaming services became subject to sales tax, a change from 2023 when they were excluded.

Exemptions and Reductions

Specific exemptions, such as those for basic necessities like groceries and prescription medicine, remained unchanged.

However, new exemptions were introduced for clean energy products beginning July 1, 2024, to promote environmental sustainability.

Online Retailer Obligations

From January 1, 2024, there were stricter regulations on online retailers, requiring all online sales platforms to collect and remit sales taxes, irrespective of the seller’s size.

Previously, smaller sellers had certain leniencies in 2023.

Luxury Tax

A new luxury tax was imposed on high-end goods (items over $10,000) starting from January 1, 2024.

This is a significant shift since no such tax existed in 2023.

Excise and discretionary taxes and other sales tax considerations in California

Sales and Use Tax

Base Rate: The statewide base sales tax rate in California is 7.25%.

Local Add-Ons: Local jurisdictions (counties, cities) can impose additional rates, leading to varying total sales taxes across regions. Some areas may have total sales tax rates exceeding 10%.

Excise Taxes

Gasoline: As of 2024, California imposes an excise tax on gasoline. The rate can change each fiscal year and is subject to adjustments based on inflation and other factors.

Tobacco Products: There is an excise tax on cigarettes and tobacco products. For instance, the tax on cigarettes is per pack, and other tobacco products are taxed based on their wholesale cost.

Alcoholic Beverages: Different types of alcoholic beverages are subject to varying excise tax rates. Beer, wine, and spirits are taxed differently.

Discretionary Taxes

Cannabis: California has implemented both excise taxes and sales taxes on cannabis and cannabis products. This includes a cultivation tax on all harvested cannabis and a 15% excise tax on the purchase of cannabis products.

Sugar-Sweetened Beverages: While there is no statewide excise tax specifically targeting sugar-sweetened beverages, some local jurisdictions in California have considered implementing or have implemented such taxes.

Special Sales Tax Considerations

Online Sales: As of recent years, remote sellers who exceed certain sales thresholds are required to collect and remit sales tax. This aligns with the U.S. Supreme Court ruling in South Dakota v. Wayfair.

Digital Goods: Some digital goods and services may be subject to sales tax depending on their nature and the specific jurisdiction’s rules.

Vehicle Taxes

Use Tax on Vehicle Purchases: If you purchase a vehicle outside California and then bring it into the state, you may be subject to use tax at a rate comparable to the local sales tax.

VLF (Vehicle License Fee): This is an annual fee for licensing of vehicles, calculated based on the value of the vehicle.

Other Local Taxes

Special Districts: Some regions have special taxing districts that impose additional sales and use taxes to fund specific projects or services like transportation, public safety, or education.

Understanding nexus in California for local and out-of-state sellers

Physical nexus

California's physical nexus laws for sales tax in 2024 largely remain steady from 2023, with few refinements emphasizing employee activities and subcontractor use, aiming to clarify and close potential loopholes while maintaining overall standards. In California, the physical nexus for sales tax in 2024 remains similar to that of 2023:

Presence/Location of Business or Office

2023: Owning, leasing, or maintaining an office, distribution house, salesroom, or warehouse.

2024: Unchanged; the physical presence through a business or office within the state continues to establish a nexus.

Employees or Representatives in the State

2023: Having employees or independent contractors operating within California.

2024: Clarified that even occasional presence of employees for business purposes, like attending trade shows, also creates a nexus.

Delivery of Goods

2023: Delivering goods to customers in California using company vehicles.

2024: Unchanged; continues to establish a nexus if the delivery by company vehicles is within the state.

Real Property

2023: Owning or leasing real property within California.

2024: Unchanged; ownership or lease of any real property remains a nexus trigger.

Installations, Assembly, or Repairs

2023: Conducting installations, assemblies, or repair services within the state.

2024: Expanded to include subcontractors hired to perform installations or repair services, creating a nexus.

Affiliated Entities

2023: Nexus created through relationships with affiliated entities conducting business within California.

2024: Unchanged; presence through affiliated entities still generates a nexus.

In-State Inventory

2023: Using third-party fulfillment services holding inventory in California.

2024: Unchanged but clearer guidelines provided regarding consignment inventory.

Economic nexus

In 2024, California's economic nexus for sales tax has made the following updates:

Revenue Threshold

In 2023, California required out-of-state sellers to collect sales tax if they exceeded $500,000 in sales.

In 2024, the threshold remains at $500,000, with no changes in the monetary criterion for economic nexus.

Transaction Count

Prior to 2024, California did not employ a transaction count threshold, solely relying on the revenue criterion.

This continues in 2024, maintaining the simplicity of a single revenue-based threshold without adding complexity through transaction counts.

Marketplace Facilitators

The rules for marketplace facilitators in 2023 mandated these entities to collect and remit sales tax if their sales on behalf of sellers exceeded $500,000.

This regulation remains the same in 2024, reinforcing the $500,000 threshold for marketplace facilitators.

Enforcement and Penalties

Penalties for non-compliance in 2023 included fines and interest on unpaid taxes.

In 2024, these penalties are adjusted slightly for inflation but the basic enforcement mechanisms remain consistent.

Registration Requirements

Sellers exceeding the economic nexus threshold in 2023 were required to register with the California Department of Tax and Fee Administration (CDTFA).

This requirement continues in 2024 without significant alterations to the registration process.

Technology and Compliance Tools

In 2024, advancements in technology facilitate smoother compliance processes, with the CDTFA offering enhanced online tools compared to 2023.

These tools are designed to simplify the registration, filing, and remittance processes.

Affiliate nexus

In 2024, California's affiliate nexus provisions for sales tax have undergone major updates from their 2023 values. These updates continue to tighten requirements and expand the scope of taxable entities, reflecting broader trends in state tax policy:

Threshold Changes

In 2024, the sales threshold for requiring businesses to collect sales tax remains at the same level as in 2023, set at $500,000 in annual sales within the state.

Expanded Definition of Affiliate Nexus

The definition of what constitutes an affiliate has been broadened. In 2024, affiliated entities now include relationships that involve not only direct control but also substantial influence.

This is an extension from 2023 where control had to be direct and clearly demonstrable.

Marketplace Facilitators

In 2024, the responsibilities of marketplace facilitators have expanded. They are required to collect and remit sales tax on behalf of sellers with a notable clarification on their liability.

In 2023, the requirement existed but was less explicit about the liability distribution in complex supply chains.

Warehouse and Distribution Centers

The use of in-state warehouse and distribution centers now unequivocally establishes nexus in 2024, even if operated by third parties.

This strict stance solidifies the position from 2023, which required more direct operational control to establish nexus.

Digital Goods and Services

The scope of taxable digital goods and services has extended further in 2024.

Where 2023 saw a push into digital products, 2024 incorporates a wider array of digital services, reflecting evolving ecommerce practices.

Statutory Language

Simplification of statutory language in 2024 aims to reduce ambiguities that were present in 2023.

This makes compliance smoother for businesses interpreting their obligations under the nexus provisions.

Click-through nexus

In California, click-through nexus for sales tax in 2024 has undergone several updates compared to 2023:

Threshold Increase

In 2023, out-of-state sellers needed to meet the $500,000 sales threshold in the state to establish nexus.

In 2024, this threshold has been increased to $750,000 in cumulative sales within California over a 12-month period, making it more stringent for sellers to avoid nexus obligations.

Affiliate Criteria Adjustment

For 2023, the click-through nexus applied to sellers who had agreements with California residents receiving a commission from sales facilitated through a link. In 2024, the criteria for affiliates have been slightly modified to include performance-based marketing partners, thereby widening the net for sellers subject to nexus.

Compliance Deadlines

The reporting and compliance deadlines were relatively lenient in 2023, giving sellers up to 60 days to register and comply after crossing the threshold.

In 2024, this window has been narrowed to 30 days, emphasizing quicker compliance for affected sellers.

Penalty Revisions

Penalties for non-compliance in 2023 were limited to monetary fines based on outstanding tax amounts.

However, in 2024, the penalties have been expanded to include potential business operation suspensions for repeat or significant offenders, elevating the consequences for neglecting nexus obligations.

Technology and Data Tracking

The state's 2023 enforcement relied primarily on sales data and traditional tracking methods.

By 2024, California has implemented advanced data analytics and AI-driven tracking systems to better identify and monitor out-of-state sellers establishing click-through nexus, increasing detection accuracy.

In-state Contractual Relationships

In 2023, having in-state representatives or agents facilitating sales only loosely contributed to establishing nexus.

The 2024 updates make such relationships more explicitly accountable, closing loopholes that previously existed.

Marketplace nexus

In 2024, California maintains its marketplace nexus standards for sales tax, which require out-of-state sellers and marketplace facilitators to collect and remit sales tax if certain thresholds are met, clarifying what is California sales tax for remote entrepreneurs.

The primary change in 2024 involves adjustments to compliance processes and potential penalties for non-compliance, which have been streamlined and made stricter respectively, compared to 2023.

The thresholds for economic nexus, marketplace facilitator obligations, and overall registration requirements remain consistent between the two years.

As in 2023, marketplace nexus remained the same in 2024:

Economic thresholds: As in 2023, sellers must collect sales tax if they exceed $500,000 in gross sales to California customers within the previous or current calendar year.

Marketplace facilitators: Just like in 2023, marketplace facilitators are obligated to collect and remit sales tax on behalf of third-party sellers using their platform if combined sales exceed $500,000 in California.

Registration requirement: The $500,000 threshold for mandatory registration and tax collection remains the same as it was in 2023.

Remote sellers' obligations: Remote sellers with no physical presence but who exceed the $500,000 sales threshold must collect and remit sales tax, continuing the 2023 policy.

Trade shows

In 2024, California imposes specific sales tax obligations for businesses participating in trade show events.

Temporary Sales Permits: These are required for any business selling goods at a trade show. These are obtained through the California Department of Tax and Fee Administration (CDTFA).

Nexus Requirement: Businesses that establish a physical presence, including exhibiting at a trade show, may have a sales tax nexus in California, making them responsible for collecting and remitting sales tax.

Sales Tax Collection: Exhibitors must collect sales tax on all taxable sales made during the trade show, based on the location where the event is held.

Local Tax Variations: California's sales tax rates vary by city and county, so businesses must apply the correct rate applicable to the trade show location.

Record-Keeping: Detailed records of all sales transactions, including the location, date, and amount collected, must be maintained for reporting purposes.

Electronic Filing: Taxes may need to be reported and paid through the CDTFA's online services platform by the specified due dates to avoid penalties.

Use Tax Obligations: If tangible personal property is purchased out-of-state and used in California (e.g., exhibition materials), use tax may be applicable.

Vendor Compliance: Vendors failing to comply with California's sales tax laws may face penalties, fines, and interest on the unpaid amount.

Fulfillment by Amazon and nexus

Fulfillment by Amazon (FBA) is a service allowing businesses to outsource order fulfillment to Amazon.

Sellers send their products to Amazon's warehouses, and Amazon handles storage, packaging, and shipping. Businesses benefit from Amazon's logistics and customer service expertise.

The service includes inventory management, returns processing, and access to Amazon Prime customers, which can boost sales.

• Product Shipping: Sellers ship products to Amazon's fulfillment centers.
• Storage: Products are stored in Amazon’s warehouses until sold.
• Orders: When a customer purchases a product, Amazon retrieves, packages, and ships it.
• Customer Service: Amazon handles inquiries and returns on behalf of the seller.
• Fees: FBA involves storage fees (charged monthly) and fulfillment fees (charged per unit).

FBA sales tax obligations in California for 2024

Sales Tax Nexus: FBA sellers can establish a physical nexus in California due to inventory stored in the state’s fulfillment centers.

Sales Tax Registration: Sellers with nexus must register with the California Department of Tax and Fee Administration (CDTFA).

Sales Tax Collection: California requires sellers to collect sales tax on orders shipped within the state once nexus is established.

Filing Frequency: Retailers must file sales tax returns either monthly, quarterly, or annually, depending on sales volume.

Marketplace Facilitator: Amazon is considered a marketplace facilitator, meaning it collects and remits sales tax on behalf of sellers for transactions made through the platform.

Compliance: Sellers must maintain accurate records of transactions and ensure compliance with state tax laws.

Local Taxes: Beyond state rates, local district taxes may apply, depending on the delivery address within California.

Permits, certificates and sales tax registration in California

To register for sales tax in California in 2024, businesses must apply for a seller's permit through the California Department of Tax and Fee Administration (CDTFA).

Essential details include business ownership information, contact details, and expected revenues.

Once registered, businesses are required to collect sales tax at point of sale and submit periodic tax returns to the CDTFA.

Registering for sales tax collection in California

Determine Eligibility

Ensure that your business needs to collect sales tax. In California, businesses selling tangible personal property sold at retail need to collect sales tax.

Prepare Necessary Information

Before you begin the registration process, gather essential business details such as your business name, type, address, and federal Employer Identification Number (EIN).

Also prepare ownership information like owner's Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN).

Register Online

Visit the California Department of Tax and Fee Administration (CDTFA) website. (While I cannot provide direct links, you can search for the CDTFA website through a search engine.)

Navigate to Registration

On the CDTFA website, look for the "Register" or "Sign Up" section typically found on the homepage or under the "Tax Programs" or "Online Services" menu.

Complete the Application Process

Fill out the online application form, providing all requested information about your business and its operations.

Make sure to include accurate details to avoid delays in processing.

Submit the Application

Review your information carefully before submitting the application.

Submit it electronically through the CDTFA’s online portal.

Receive Your Seller’s Permit

Once your application is processed and approved, you will receive a Seller’s Permit from the CDTFA.

This permit allows you to legally collect sales tax from your customers.

Understand Your Obligations

Along with registering, ensure you understand your ongoing obligations, such as collecting sales tax at the correct rate, filing sales tax returns regularly, and remitting the collected taxes to the CDTFA.

Cost of registering for sales tax in California in 2024

In California, there is no fee to register for a seller’s permit, which you need in order to collect sales tax.

This is true as of my latest update in October 2023, and it is likely to remain the same into 2024. Essentially, you can register for a seller’s permit without incurring any registration fees.

Federal tax ID requirements for registering

If you are starting a business in California and need to register for sales tax, you will typically be required to provide an Employer Identification Number (EIN) in the registration process. An EIN is also known as a Federal Tax Identification Number and is used to identify a business entity.

To register for an EIN, you can apply directly through the IRS. Here is the link to the application page: Apply for an EIN online via the IRS

After obtaining your EIN, you can proceed to register for a seller's permit in California through the California Department of Tax and Fee Administration (CDTFA). You can register online through their website: Register for a Seller's Permit with the CDTFA

Streamlined sales tax program and California

As of 2024, California is not a member of the Streamlined Sales Tax (SST) program.

The SST program is an initiative aimed at simplifying and modernizing sales and use tax collection and administration to make it easier for businesses to comply with tax laws. It involves a uniform set of rules and definitions, centralized registration, and a simplified tax rate structure.

While many states have joined this program to reduce the complexity of sales tax compliance, California has chosen not to participate.

Acquiring a business and registering for sales tax in California

When acquiring a business in California and needing to register for sales tax, you need to follow several steps and provide specific information to the California Department of Tax and Fee Administration (CDTFA).

Determine If You Need To Register

Sales Tax Permit: If you're selling tangible personal property in California, you’ll need to register for a seller's permit.

Business Information

Ownership Structure: Specify whether the business is a sole proprietorship, partnership, corporation, LLC, etc.

Legal Business Name and Trade Names: Any dba (doing business as) names should also be identified.

Federal Employer Identification Number (FEIN): Obtain an FEIN from the IRS if you don't already have one. Sole proprietors can use their Social Security Number (SSN).

Secretary of State Number: If applicable, the number issued when registering your business with the California Secretary of State.

Contact Information

Business Addresses: Include both physical and mailing addresses.

Owner/Officer Information: Names, addresses, and social security numbers for all principal individuals or entities involved.

Previous Business Details

Acquisition Information: Details about the acquired business, including the previous owner’s permit number and the date of acquisition.

Sales Information

Nature of Business: Description of the business activities and the types of products or services sold.

Estimated Revenue: Provide estimated monthly sales and exemption amounts.

Bond Requirement

Security Deposit: In some cases, you may be required to provide a security deposit or bond. This is based on the nature and volume of your sales.

Signage

Location: Clearly, post your seller's permit at your place of business.

Application Submission

Online Registration: The CDTFA provides an online registration system where you can submit your application.

Sales Tax Collection

Collection & Reporting: From the start of operations, you must collect sales tax from customers and periodically file returns reporting the collected taxes.

Compliance

Record-Keeping: Maintain thorough records of all sales and purchases, and comply with all reporting and compliance requirements set forth by the CDTFA.

Other California registrations to consider

Seller’s Permit: Required if you are selling or leasing tangible personal property that would ordinarily be subject to sales tax if sold at retail.

Employment Registrations: If you have employees, you'll need to register for unemployment insurance, state payroll taxes, and potentially workers' compensation insurance.

Business Licenses: Depending on your business type and location, you may need a general business license from the city or county where you operate.

Regulatory Licenses and Permits: Specific industries might require additional permits or licenses. For example:

• Alcoholic Beverage License: If you are selling or serving alcohol.
• Health Permits: For businesses involved in food preparation or health services.
• Environmental Permits: For businesses that have environmental impacts, such as those dealing with hazardous materials.

Fictitious Business Name (FBN) Registration: Also known as doing business as (DBA), if you are operating under a name different than your legal business name.

Professional Licenses: Some professions, such as contractors, accountants, and medical professionals, require state-specific professional licenses.

Zoning Permits: Ensure your business location complies with local zoning laws.

State Taxes: Consideration of other state taxes such as franchise tax, if you are incorporated.

Requirements for online sellers in California

Yes, in 2024, online sellers in California do have specific requirements for sales tax collection:

Sales Tax Nexus: Online sellers must collect sales tax if they have a sales tax nexus in California. Nexus is established through:

• Physical presence (such as an office, warehouse, or inventory stored in California).
• Economic nexus, which means making sales exceeding $500,000 in California within the previous or current calendar year.

Marketplace Facilitators: If you sell through a marketplace facilitator such as Amazon, Etsy, or eBay, the marketplace is generally responsible for collecting and remitting sales tax on your behalf. However, it's crucial to confirm that the marketplace is fulfilling this obligation.

Seller’s Permit: Online sellers must obtain a seller’s permit from the California Department of Tax and Fee Administration (CDTFA). This permit allows you to collect sales tax legally in the state.

Sales Tax Rates: California has a base state sales tax rate, but local jurisdictions (cities, counties) can levy additional taxes. Online sellers must be aware of and collect the correct amount of tax based on the consumer’s location.

Reporting and Remittance: Sales tax collected must be reported and remitted to the CDTFA. Filing frequency (monthly, quarterly, or annually) typically depends on your sales volume.

Exemptions and Exclusions: Certain sales might be exempt from tax, such as sales to non-profit organizations or sales of certain goods (like some groceries or prescription medicines). It’s important to understand these exemptions to ensure compliance.

Collecting sales tax in California

Understanding origin vs. destination sales tax collection

California operates as a modified origin-based sales tax state.

Under this system, the state sales tax rate is determined by the location of the seller, while additional district taxes are determined by the location of the buyer. This means that the base state rate is applied from where the sale originates, but any applicable local district taxes are based on the delivery address.

For more details, you can refer to the California Department of Tax and Fee Administration (CDTFA) which oversees these sales tax protocols.

Taxable products in California

As of 2024, California imposes sales tax on a variety of product categories. Generally, the sales tax applies to all retail sales of tangible personal property unless specifically exempted.

Main Product Categories

General Merchandise: This includes items such as clothing, electronics, household goods, furniture, toys, and books.

Prepared Foods and Beverages: Sales tax is applied to prepared foods and beverages sold at restaurants, cafes, grocery stores, and similar establishments. This includes hot foods, carbonated beverages, and any food or drink meant for immediate consumption.

Automobiles and Trucks: Sales of new and used vehicles are subject to sales tax, including cars, trucks, motorcycles, and recreational vehicles.

Gasoline and Diesel Fuel: These fuels incur sales tax, though they are also subject to additional specific excise taxes.

Computers and Software: Sales tax applies to both physical hardware and software, including downloadable software when sold commercially.

Appliances and Electronics: Household appliances like refrigerators, washing machines, televisions, and audio equipment are taxed.

Building Materials: Items such as lumber, paint, fixtures, and equipment used in construction and home improvement incur sales tax.

Sporting Goods: This category covers items like bicycles, sports equipment, and exercise gear.

Notable Exemptions and Specific Conditions

Food Products for Home Consumption: Basic groceries are generally exempt from sales tax, which includes non-prepared food items like vegetables, meats, canned goods, and bakery items.

Prescription Medicines and Medical Equipment: Prescription medications and certain medical devices prescribed by a healthcare professional are exempt.

Agricultural Supplies: Feed for animals, seeds, and plants used for food production are often exempt from sales tax.

Non-taxable products in California

For the most current information and a comprehensive list of exempt items, please visit the California Department of Tax and Fee Administration (CDTFA) website: CDTFA Exemptions:

Food Products: Generally, sales of food for human consumption are exempt from sales tax, with notable exceptions such as soda, alcohol, and hot prepared foods.

Prescription Medicines: Prescription medications, including insulin and other specified drugs, are exempt from sales tax.

Medical Devices and Equipment: Certain medical devices, appliances, and related items that are prescribed by a healthcare professional are tax-exempt.

Manufacturing Equipment: Certain equipment used in manufacturing, processing, refining, fabricating, or recycling processes may be eligible for a partial exemption.

Agricultural Products: Seeds, plants, and animals, as well as fertilizers and certain related products, may qualify for tax exemptions.

Alternative Energy Equipment: Various types of equipment used in renewable energy generation, such as solar panels, may also be exempt.

Vehicles for the Disabled: Certain vehicles and modifications for individuals with disabilities can be exempt from sales tax.

Educational Materials: Some educational materials purchased by qualifying institutions may be tax-exempt.

Is SaaS taxable in California?

In California, Software as a Service (SaaS) is generally not subject to sales tax as it is considered a service rather than tangible personal property.

Are digital products taxable in California?

In 2024, in California, digital products such as e-books, music downloads, and software are generally not subject to sales tax.

However, if these products are delivered on physical media or if ancillary services are included, they may become taxable.

Are services taxable in California?

In California, most sales of tangible personal property are subject to sales tax, but services are generally not taxable unless they are part of a taxable sale. However, some specific services, such as fabrication, installation, and certain repair services, do incur tax.

Sales tax exemption certificates

In California, sales tax exemption certificates are documents that allow qualifying purchases to be made without paying sales tax.

These certificates are used by buyers who meet specific criteria such as resale purposes, nonprofit activities, or manufacturing goods for sale.

To obtain and use an exemption certificate, buyers must fill out the necessary forms, providing details such as their seller's permit number and the reason for the exemption. Sellers accepting these certificates are responsible for keeping them on file and ensuring their validity.

State tax holidays in California for 2024

Sales tax holidays are designated periods during which specific items are exempt from sales tax, encouraging consumer spending.

California does not have any sales tax holidays scheduled for 2024.

Filing sales tax returns in California

Determine Whether You Need to File: Verify if your business has nexus in California, requiring sales tax collection.

Register for a Seller's Permit: If you're required to collect sales tax, register for a permit with the California Department of Tax and Fee Administration (CDTFA).

Keep Detailed Records: Maintain accurate records of sales and taxable transactions.

Calculate the Sales Tax Owed: Use the applicable state and local tax rates to determine the total sales tax due.

File Your Return Online: Log in to your CDTFA account to file your sales tax return electronically.

Submit Payment: Pay the taxes owed using one of the CDTFA's accepted payment methods.

Keep a Copy of the Filed Return: Preserve a copy of the return and payment confirmation for your records.

Know Filing Deadlines: Be aware of and meet all quarterly or annual filing deadlines.

Sales tax filing frequency

In the state of California, businesses are required to collect sales tax on taxable sales and remit these taxes to the California Department of Tax and Fee Administration (CDTFA). The frequency with which businesses must file sales tax returns and remit the collected taxes depends on the amount of their average monthly tax liability.

For businesses with an average monthly sales tax liability of $10,000 or more, filing must be done on a monthly basis. This is intended to ensure timely collection of large amounts of tax revenue. Monthly returns are typically due on the last day of the month following the reporting period.

Businesses with an average monthly liability between $1,000 and $10,000 are required to file on a quarterly basis. Quarterly filings help to reduce the administrative burden on businesses with moderate sales volumes while still ensuring regular collection of tax revenue. Quarterly returns are generally due on the last day of the month following the end of the quarter.

For smaller businesses, with an average monthly tax liability of less than $1,000, the CDTFA allows for an annual filing frequency. This less frequent requirement reduces the administrative load on small businesses with relatively low sales volumes. Annual returns are due on January 31 of the following year.

Additionally, there is a provision for prepayment of sales taxes for businesses with exceptionally high liabilities. These businesses are required to make prepayments if their average monthly liability exceeds $17,000. Prepayments are due twice a month to ensure that the state receives these significant amounts in a timely manner.

Filing when no sales tax has been collected

If no sales tax is collected while registered for sales tax in California in 2024, the business may face significant repercussions. These may include fines, penalties, and back taxes owed to the state.

Additionally, deliberate non-compliance can lead to an audit, potential legal action, and damage to the business's reputation.

Penalties for late filing and non-payment of sales taxes

In California, timely filing and payment of sales taxes are crucial for businesses to stay compliant with state tax regulations.

For 2024, businesses experiencing late sales tax filings may face penalties and interest charges. The penalty for late filing is 10% of the unpaid tax if the return is filed after the due date. If the return is late by more than one month, an additional 10% penalty may apply. Furthermore, interest accrues on any unpaid tax from the original due date until the tax is paid in full.

Non-payment of sales taxes carries more severe consequences. Besides incurring similar penalties and interest, businesses may also be subject to additional fees and collection actions. The California Department of Tax and Fee Administration (CDTFA) can issue liens on business and personal property, garnish wages, and levy bank accounts to recover unpaid taxes. Persistent non-payment can result in the revocation of the seller’s permit, effectively halting business operations.

Sales tax discounts and incentives

In 2024, California continues to offer several sales tax incentives and discounts that can benefit businesses.

One primary incentive is the partial sales tax exemption for manufacturing and research and development equipment. Businesses that purchase or lease qualifying machinery, equipment, and related parts used in manufacturing, processing, or research and development activities may be eligible for a partial exemption from the state's sales tax, thereby reducing the overall tax burden.

Additionally, California maintains incentives for businesses engaging in clean energy and environmental sustainability projects. Companies investing in renewable energy equipment or projects aimed at reducing environmental impacts may qualify for various credits and sales tax reductions.

There are also local initiatives in various municipalities within California that might offer additional sales tax incentives to encourage business growth and investment in specific areas or industries. These local programs can vary, offering incentives such as reduced rates or rebates for qualifying businesses.

2024 sales tax filing due dates for California

Coming soon.

Shipping and sales tax in California

When to pay tax on shipping in California

In California, whether sales tax applies to shipping charges depends on certain conditions. As of the most recent regulations:

Taxable Sale

If a sale is taxable, then shipping charges may also be taxable, depending on how they are stated on the invoice.

If the shipping charge is separately stated from the price of the item, it is generally not taxable.

If the shipping charge is included in the lump-sum price of the item or if there is no separate statement, the charge may be taxable.

Delivery Method

Shipping charges for delivery directly from the retailer to the purchaser are generally not taxable if they are separately stated on the invoice.

If the delivery involves the use of the retailer's own vehicles, the shipping charge typically becomes part of the sale price and is therefore taxed.

Combined Charges

If handling and shipping charges are combined into one item on the invoice, the entire amount may be taxable, even if the actual shipping would have been non-taxable when separately stated.

Non-Taxable Sales

For non-taxable sales (such as sales of exempt items or sales for resale), shipping charges are not subject to sales tax, regardless of how they are stated.