Internet Sales (Publication 109)

Your business may be among the many businesses taking advantage of changing technology to market products over the Internet. Despite all the publicity surrounding Internet commerce, one essential fact that is often overlooked is that there is no general tax exemption for sales of tangible personal property (merchandise) made over the Internet (Internet sales). This publication is intended to help you determine if you must pay California's sales and use taxes on your Internet sales.

California sales and use tax

When does sales tax apply?

A sale occurs in the state where the merchandise is physically located at the time the sale takes place. California's sales tax is imposed on retailers and generally applies to their gross receipts from retail sales of merchandise in the state.

When does use tax apply?

A sale generally takes place outside of California when the merchandise is delivered to a common carrier outside the state for shipment to the consumer in California.

California's use tax is imposed on consumers. When sales tax does not apply, California use tax generally applies to the sales price paid for the purchase of merchandise from a retailer for storage, use, or other consumption in the state.

Therefore, California's use tax will generally apply when there is a retail sale of merchandise to a California consumer and the merchandise is delivered to a common carrier outside the state for shipment to the consumer in California.

California seller's permit requirements

Generally, a person who sells tangible merchandise in California and makes three or more sales in a 12-month period is required to hold a seller's permit. This is true regardless of whether the sales are at retail or for resale. When you are actively engaged in selling merchandise in California, even temporarily, you are required to register for a seller's permit with the California Department of Tax and Fee Administration (CDTFA), and report and pay tax to the CDTFA.

For more registration information, please see publication 107, Do You Need a California Seller's Permit? and the Online Retailers: Registration and Local Tax tab of our Local and District Tax Guide for Retailers.

Certificate of Registration—Use Tax requirements

A retailer who is engaged in business in this state selling tangible merchandise to customers for storage, use, or other consumption in California is required to register with CDTFA for a Certificate of Registration—Use Tax, collect use tax from its California customers, and pay the use tax to CDTFA.

In general, you are engaged in business in California if you are a retailer that:

  1. Owns or leases real or tangible merchandise, including a computer server, in California; or
  2. Maintains, occupies, or uses, directly or indirectly, or through a subsidiary or agent, a permanent or temporary office, place of distribution, sales or sample room, warehouse or storage place, or other physical place of business in California (regardles of whether it is or is not related to your sales activities); or
  3. Has people operating in California under its authority for the purpose of selling, delivering, installing, assembling, or taking orders for industry/out-of-state-retailers/tangible merchandise; or
  4. Derives rentals from a lease of tangible merchandise (including vehicles, vessels, and aircraft) situated in California; or
  5. Beginning April 1, 2019, has total combined sales of tangible merchandise for delivery in California by you and all persons related to you that exceed $500,000 during the preceding or current calendar year.

For more information, please see Regulation 1684, Collection of Use Tax by Retailers, publication 77, Out-of-State Sellers: Do You Need to Register in California?, and our online Tax Guide for Out-of-State Retailers. The Online Retailers: Registration and Local Tax tab of our Local and District Tax Guide for Retailers may also provide you with helpful information.

Internet sales

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 (see the Nontaxable Sales tab).

Who is responsible for collecting and paying tax on Internet sales?

If you actively sell merchandise in California or are a retailer engaged in business in California, you are responsible for collecting and paying tax on your Internet sales. These include sales you make through Internet shopping platforms, Internet auction sites, and your own website (see the California seller's permit requirements and Certificate of Registration—Use Tax requirements sections).

This responsibility exists unless an Internet sale is made through a marketplace and a marketplace facilitator, as defined in the Marketplace Facilitator Act, is the seller and retailer responsible for paying or collecting tax on that sale. For more information on who is responsible for tax on sales facilitated through a marketplace, see the Online Marketplaces and Fulfillment Centers tab.

What is the use tax rate?

The use tax rate is the same as the sales tax rate for any given California location; please see California City and County Sales and Use Tax Rates. Transactions that are exempt from sales tax are usually exempt from use tax.

Internet auction sites

Internet auction sites generally provide an online site where sellers can list their merchandise for sale, seek auction-style bids, accept bids or other offers to buy their merchandise, and arrange for shipment of their merchandise to the buyers offering to pay the highest price. The owners of Internet auction sites are not generally auctioneers that are retailers under Regulation 1565, Auctioneers.

Who was considered the retailer prior to October 1, 2019?

Prior to October 1, 2019, if you were making retail sales of tangible merchandise through an Internet auction site, you were generally considered the retailer of those sales. This was true whether you collected payments from the buyers, or a third party collected payments on your behalf. Also, if you were registered or required to be registered for a seller's permit or Certificate of Registration—Use Tax, then you were required to pay or collect and pay tax on your retail sales to California customers through an Internet auction site.

Who is considered the retailer on and after October 1, 2019?

Beginning October 1, 2019, a person meeting the criteria to be a marketplace facilitator and entering into an agreement to facilitate your sales of tangible merchandise through a marketplace, such as an Internet auction site, may be the retailer. As such, the marketplace facilitator is required to collect and pay the tax on your retail sales of merchandise facilitated through their marketplace.

You should contact the person operating the Internet auction site where you sell tangible merchandise to determine if they are a marketplace facilitator and are responsible for the tax on your sales made through their Internet auction site. For more information on who is responsible for tax on sales facilitated through a marketplace, see the Online Marketplaces and Fulfillment Centers tab.

Local taxes

"Local Taxes" are sales and use taxes imposed by local jurisdictions, usually cities or counties, under the Bradley-Burns Uniform Local Sales and Use Tax Law. The current statewide sales and use tax rate is 7.25 percent, which includes 1.25 percent of local taxes (1.00 percent Local Jurisdiction and .25 percent Local Transportation Fund). When you file your sales and use tax return you are generally required to allocate your sales among local jurisdictions, either directly or through a countywide pool. The 1.00 percent portion goes to the city or county where the sale or use occurs. The .25 percent portion always goes to the county where the sale or use occurs. By properly allocating your sales you ensure that the local jurisdiction receives proper funding of local tax. These funds are used by local jurisdictions for their city or county operations, including for transportation.

For more information about allocating local tax, visit our Local and District Tax Guide for Retailers.

Please note: If you are an online retailer, you are required to collect, report, and pay tax like other retailers, but how you allocate your Internet transactions can depend on several factors. For more specific information on local tax reporting requirements for online retailers, see the Online Retailers: Registration and Local Tax tab of our Local and District Tax Guide for Retailers.

District tax collection requirements

District taxes are voter-approved transactions (sales) and use taxes imposed by cities, counties, and other local jurisdictions. The base statewide sales and use tax rate is currently 7.25 percent. However, total sales and use tax rates are higher in areas where district taxes are imposed. In these areas, the total tax rate includes the statewide tax rate plus applicable district taxes.

District Sales Tax

District sales taxes are imposed on retailers. If you make retail sales in California subject to the state sales tax from a place of business located in a taxing district, that district's sales tax is generally due on your retail sales of merchandise. However, that district's sales tax does not apply if your retail sales are for delivery outside of the district where your place of business is located.

District Use Tax

District use tax is imposed on consumers. When district sales tax does not apply, district use taxes are imposed on the price of merchandise purchased from a retailer for storage, use, or other consumption in a taxing district. If you are a retailer, including an Internet seller, and you are "engaged in business in a district" imposing a district tax, you are responsible for collecting the district use tax from your customer and reporting and paying it to CDTFA on your sales of tangible merchandise for delivery in the district.

Who is engaged in business in a district?

You are "engaged in business in a district" if you are a retailer that:

  • Maintains, occupies, or uses, directly or indirectly, or through a subsidiary or agent, a permanent or temporary office, place of distribution, sales or sample room, warehouse or storage place, or other physical place of business in the district; or
  • Has a representative, agent, or independent contractor operating in the district on your behalf or under your authority, or under the authority of your subsidiary, for the purpose of making sales, taking orders, assembling or installing merchandise, training customers, making deliveries, or otherwise establishing or maintaining a market for your products; or
  • Receives rental payments from the leases of tangible merchandise (such as leases of machinery, equipment, and furniture) located in the district; or
  • Owns or leases tangible merchandise in the district (such as machinery, equipment, furniture, or a computer server); or
  • Sells or leases vehicles or undocumented vessels which will be registered in a district; or
  • Has total combined sales of tangible merchandise in California or for delivery in California by you and all persons related to you that exceed $500,000 in the preceding or current calendar year.

Beginning April 25, 2019, any retailer required to be registered with CDTFA, whether located inside or outside of California, that meets the $500,000 threshold, is engaged in business in every district in California regardless of whether they have or do not have a physical presence in those districts. As such, these retailers are required to collect the district use tax on their taxable sales made for delivery in those districts that impose a district tax. Retailers that do not meet the $500,000 threshold are still engaged in business in any district(s) in which they have a physical presence.

Who is not required to collect district use tax?

Generally, you are not required to collect a district's use tax if you make sales for shipment by common carrier into a taxing district and you are not engaged in business in the district but, your customer remains liable for the district's use tax. As a courtesy to your customer, you may choose to collect the district's use tax from them. If you do, it should be shown on the customer's invoice and you must report it on your return to CDTFA.

For more information, please see publication 44, District Taxes (Sales and Use Taxes), and the online guides, Use Tax Collection Requirements Based on Sales into California Due to the Wayfair Decision and Local and District Tax Guide for Retailers.

Courtesy collection of use tax

California consumers are responsible for paying the state, local, and district use tax on purchases from retailers that do not collect use tax. If you are not required to register with CDTFA, you may choose to voluntarily register with CDTFA for a Certificate of Registration—Use Tax to collect and pay use tax as a courtesy to your California customers. If you hold such a certificate, you will be required to collect and pay tax from purchasers in the same manner as retailers engaged in business in this state. Your obligation to pay tax will continue until you close out your Certificate of Registration—Use Tax.

Shipping and delivery charges

Tax does not apply to separately stated charges for delivery of tangible merchandise from the retailer's place of business or other point from which shipment is made directly to the purchaser, provided the delivery is by other than the facilities of the retailer (for example, by United States mail, independent contractor, or common carrier). The exclusion for delivery and shipping charges only applies to the cost of the transportation paid by the retailer. The portion of a shipping or delivery charge that is greater than the actual delivery cost is taxable.

Also, handling charges are for a service related to the sale and are subject to tax when related to a taxable sale. Please see publication 100, Shipping and Delivery Charges.

Registration

If you are not currently registered with CDTFA, you may register with us online.

From our Taxpayer Online Services Portal, scroll down to Registration, select Register a New Business Activity, and follow the prompts.

Please note: This publication summarizes the law and applicable regulations in effect when the publication was written, as noted above. However, changes in the law or in regulations may have occurred since that time. If there is a conflict between the text in this publication and the law or regulations, decisions will be based on the law or regulations and not on this publication.

Revision April 2024