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The Ultimate Guide To California Sales Tax

Welcome to our handy guide on California sales tax. We'll walk you through everything you need to know, from the specific sales tax rates in different counties and cities across California to answering some of the most common questions. Plus, we'll guide you on how to efficiently collect and file your sales tax in California.

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What is Nexus?

You'll need to collect sales tax in California if you have nexus there. There are two main ways that sellers can be tied to a state when it comes to nexus: physical, or economic.

Physical nexus means having enough tangible presence, or activity in a state to merit paying sales tax in that state.

Economic nexus means passing a states' economic threshold, for total revenue, or the number of transactions in that state.

Calculating Nexus in California

Physical Nexus

  • Physical Location: Operating from a physical space in California, like a store or office.
  • Employees: Having employees based in California, regardless of their role.
  • Inventory: Storing inventory in a California warehouse, including those operated by third-party services like Amazon's FBA.
  • Sales Representatives: Sales reps visiting California can establish a nexus.
  • Delivery Vehicles: Using company vehicles for deliveries in California.
  • Temporary Physical Presence: Even short-term activities like trade shows in California can create a nexus, with some exceptions.

Economic Nexus

Following the 2018 South Dakota v. Wayfair, Inc. Supreme Court decision, California introduced an economic nexus law effective April 1, 2019. This means:

Affiliate Nexus

Currently, California does not enforce any affiliate nexus laws.

Click-Through Nexus

Similarly, California has no click-through nexus laws in effect.

Marketplace Nexus

Since October 1, 2019, California’s marketplace facilitator law holds platforms like Amazon, eBay, or Walmart responsible for collecting and remitting sales tax on behalf of third-party sellers. This means:
  • Marketplace Facilitators: These platforms are considered the retailer for sales through their marketplaces, handling the sales tax.
  • Seller Obligations: While facilitators manage the sales tax, third-party sellers still need a seller's permit if doing business in California. However, they don’t have to report or remit sales tax for sales through a registered marketplace.
As a third-party seller, it's crucial to keep track of your sales channels to ensure correct sales tax reporting and remittance for direct sales.
Did you know logo

Buy a to-go coffee cup in California, and it’s tax-free. But add a lid, and you’ll pay tax. It's an open and shut case.

Sales Tax Registration in California

How to Get Your California Sales Tax Permit

If you're running a business in California, step one is getting on board with the state's sales tax laws. This means applying for a California sales tax permit, or a seller's permit, from the California Department of Tax and Fee Administration (CDTFA). Whether you're tied to the state through physical, economic, or marketplace nexus, getting a sales tax permit is usually part of the deal.

Getting your California sales tax permit is a breeze online via the CDTFA Online Services portal. Just fill in your business details – think business type, ownership, what you do, where you do it, and other key info. Once you've sent off your application, the CDTFA will handle the rest, and you'll get your sales tax permit before you know it.

When it's time to register, make sure you have these details handy:
  • Your Social Security number, ITIN, or EIN (if you've got one).
  • Your business's official and DBA names.
  • The date you started up in California.
  • The NAICS code that fits your business activities.
  • Your business structure (like sole proprietorship, LLC, corporation, etc.).
  • Details about the people running the show (owners, partners, corporate officers).
  • Your business and mailing addresses.
  • A bit about your suppliers.

Cost of Registering for a California Sales Tax License

Here's some good news – it won't cost you a penny to get registered for a sales tax permit in California. But, depending on what you're selling and how you're selling it, the CDTFA might ask you for a security deposit after they review your application.

Federal Tax ID for California Sales Tax License

For partnerships, corporations, or LLCs, you'll need a Federal Employer Identification Number (EIN) to get your sales tax permit. If you're a sole proprietor, you can use your Social Security number or opt for an EIN.

Other California Registrations to Consider

Alongside the CDTFA, your business might need to touch base with a few other California agencies. Make sure to check what your specific business type and location require. This could include:
  • The California Secretary of State, especially for corporations, LLCs, or partnerships.
  • The Employment Development Department, if you have employees.
  • Local city or county offices, for business licenses or permits.

Guide to collecting sales tax in California

Is California an Origin or Destination Sales Tax State?

California is a bit of a mix but mainly follows destination-based sales tax rules. This means you'll typically use the sales tax rate from your customer's location for in-state sales. But wait, there's more! California also has district taxes, which can be based on the origin of the sale. If you’re shipping products, the tax is based on the destination. It's crucial to know both state and district tax rules when selling in California, and many businesses use sales tax software or consult a tax pro to get it right.

Selling Products in Your Own Store

If you're selling from a physical store in California, collect sales tax right there using the rate for your store’s location.

Selling Products Online

For online sales, charge sales tax based on where your customer is, including local district taxes.

What Sales are Subject to Sales Tax in California?

California’s statewide sales tax rate is 7.25%, which includes a local rate of 1.25% and a state rate of 6.00%. Remember, local districts might add their own taxes, so the rate could be higher in some areas. Always check for the most current rates.

Generally, if you're selling or leasing tangible stuff in California – like furniture, appliances, toys, and artwork – you'll need to collect sales tax. Some services related to making goods also fall under this umbrella.

Is Software as a Service (SaaS) Taxed in California?

Right now, California doesn’t usually tax SaaS sales. But there are always exceptions and updates, so it's wise to stay in the loop or get advice from those in the know.

What is Exempt from Californiane Sales Tax?

Some things don’t need sales tax in California. This list typically includes groceries, prescription medicines, and certain medical devices. Sales to nonprofits or resellers can also be exempt if they give you a valid resale certificate.

Who is Eligible for California Sales Tax Exemptions?

Nonprofits, resellers buying goods for resale, and manufacturers buying raw materials are often eligible for sales tax exemptions in California.

What To Do If Your Customer is Exempt from Sales Tax in California?

When a customer hands you a valid resale certificate or other proof they’re exempt from sales tax, don’t charge them tax on their purchase. Keep that certificate filed away as evidence of the tax-exempt sale.

What if You Lose a California Sales Tax Exemption Certificate?

Misplaced a California sales tax exemption certificate? Hustle to get a new copy from your customer. Not having it could leave you on the hook for the sales tax if there’s an audit. Keeping your sales tax records well-organized is always a smart move.
Did you know logo

Candy from a vending machine is taxed differently than candy from a store. Because – clearly – pressing buttons is a taxable skill.

Steps for Filing a California Sales Tax Return

Handling California sales tax returns? It's all about being accurate and timely to dodge penalties and stay on the right side of state rules.
  1. Determine Your Filing Frequency: The California Department of Tax and Fee Administration (CDTFA) will tell you how often to file - monthly, quarterly, or annually - based on your business's annual gross revenue.
  2. Gather Necessary Information: Round up all the important stuff like total taxable sales, exempt sales, and the sales tax you collected during the reporting period.
  3. Complete Form ET-1: Hop onto the CDTFA website, grab Form ET-1 - California Sales & Use Tax Return, and fill in the blanks.
  4. Submit Your Return: You've got two choices: file online through the California Taxpayer Access Point (ATAP) or go old-school and mail a paper form to the CDTFA.
  5. Pay What You Owe: If you've collected over $500 in sales tax in a month or quarter, you've got to pay electronically via ATAP. If it's less, a check will do.
    • Monthly: Big sellers file and pay each month. Your January sales tax? Due by the end of February.
    • Quarterly: Medium sellers file and pay every quarter. Deadlines are April 30, July 31, October 31, and January 31.
    • Semi-Annually: Smaller businesses file annually, with taxes due by January 31 for the previous year’s sales.
    • The CDTFA will let you know your filing schedule when you register.

What If a Filing Date Falls on a Weekend or Holiday?

If your filing date is on a weekend or holiday, don't sweat it. You get until the next business day. But why push it? File a bit early to keep things smooth.

Penalties for Late Filing in California

Miss your filing or payment deadline? Expect a 10% penalty on the amount due and interest, which changes annually.

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Top 5 Tips for Filing Sales Tax in California

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