Industry Topics for Alteration or Tailoring

The Basics

Sales and Use Taxes in General

In California, all sales of tangible personal property, which the law defines as an item that can be seen, weighed, measured, felt, or touched, are taxable unless the law provides a specific exemption or exclusion. As a business performing alteration or clothes-tailoring services, the services you perform on tangible personal property such as clothing, bedding, draperies, or other personal and household items (items) may be taxable.

Use tax is the companion to California's sales tax, and is due whenever you purchase taxable items without payment of California sales tax from an out-of-state vendor for use in California. You also owe use tax on items that you remove from your inventory and use in California when you did not pay tax when you purchased the items. To pay use tax, report the purchase price of the taxable items under “Purchases Subject to Use Tax” on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.

If you use or give away taxable items such as clothing or other miscellaneous items you purchased without paying sales tax, you owe the equivalent use tax — usually equal to the sales tax — based on the cost of those items to you.

Seller's Permit

Most people who sell taxable items or perform taxable labor (for example, fabrication) in California, even temporarily, must register with the CDTFA for a seller's permit and report and pay tax on your taxable transactions.

Registering for a seller's permit is free, although in some cases a security deposit may be required.

If you have more than one business location, you must register each individual location with us separately.

You can register for a seller's permit or consolidated seller's permit with us using our Taxpayer Online Service Portal.

Be sure to let us know about any changes to your business, such as, a change to your mailing or email address, so that we can keep your records updated and inform you of important changes in law, tax rates, or procedures. You can easily update your account information by creating an online account in our online services with a username and password, contacting our Customer Service Center, or any one of our field offices throughout the state. Contact information is available in the Resources section of this guide.

Know your Tax Rates

The current statewide base sales and use tax rate is 7.25 percent. However, the total sales and use tax rates are higher in areas where district taxes are imposed.

District taxes are voter-approved taxes imposed by cities, counties and other local jurisdictions, and are added to the statewide base rate. If you are a retailer, you are responsible for reporting your retail sales and paying the sales tax on those sales to us at the proper rate. If you make retail sales in California from a business located in a taxing district, you are generally responsible for the district sales tax. You are also responsible for collecting, reporting, and paying the district use tax when making sales for delivery into taxing districts in which you are considered “engaged in business in the district.”

Generally, you are “engaged in business in a district” when you meet one of the following conditions:

• Have a permanent or temporary business location in the district, including a warehouse, salesroom, or office,
• Have a representative or agent in the district, even temporarily, who, for example, makes sales, takes orders, or makes deliveries for you,
• Receive rental income from the lease of merchandise located in the district,
• Make annual sales of tangible personal property in California, or for delivery in California exceeding $500,000.

For more information on being engaged in business and the correct district tax rates, please see publication 44, District Taxes (Sales and Use Taxes) or our Local and District Tax Guide for Retailers.

You can look up tax rates by city and county or find the full tax rate in your city or county by going to the Find a Sales and Use Tax Rate webpage and entering the address as prompted.

Key Industry Topics

The information provided below includes common industry topics for businesses that perform alteration or clothing tailoring services. If you are a business that performs such services, your alterations or clothing tailoring may be taxable.

If your business is a dry cleaning establishment, you may have different registration requirements depending on whether certain gross receipts thresholds are met. To determine if you are required to register for a seller's permit, see the “When You are a Dry Cleaning Business” heading below for more information.

Making Alterations to New Items:

Charges for alteration or clothing tailoring services performed on new items are generally considered taxable.

The charges you make for altering new items are taxable regardless of whether the charges are separately stated or included in the selling price of the clothing.

Examples of alterations made to new items may include, but are not limited to:

• Shortening or lengthening sleeves or pants
• Modifying waist sizes
• Hemming
• Restyling
• Changing design
• Adding or Removing material

Items are considered new and tax applies when it's altered if:

• The labels or tags are still attached,
• It has unfinished hems, cuffs, or other parts, or
• It has not been previously worn by the customer (except to try on).

Example:
Your customer brought in a suit and asks you to make alterations including shortening the length of the pants and removing material from the suit jacket to make it smaller. You notice tags are still attached to the suit and the suit has not been worn. Your alteration service charge is taxable.

Supplies and Materials used to Perform Alterations on New Items

Alteration or clothing tailoring services performed on new items are considered taxable. Tax applies to the total charge for the alterations, with no deduction for your cost of supplies and materials.

You may issue a valid resale certificate to purchase your supplies and materials used to perform alteration services on new items without payment of tax. If you commingle your supplies and materials used to make alterations to both new and used items, you may not know at the time you purchase supplies and materials if you should pay tax on your purchases to your supplier. Therefore, if you pay tax on all of your supplies and materials, and later withdraw supplies and materials from inventory to perform alteration services on a new item, you may take a “Tax-Paid Purchases Resold” deduction on your sales and use tax return based on your cost of the supplies and materials used in making alterations.

For more information about issuing a resale certificate, see publication 103, Sales for Resale.

Making Alterations to Used Items:

Alteration or clothing tailoring services performed on used items are generally not taxable.

Items are considered used and tax does not apply when it's altered if:

• It has previously been worn/used by the customer, or
• It is in a state of disrepair (that is, worn-out or torn).

The charges you make altering used items are generally not taxable when the alterations are made to repair the item to the intended use for which it was created or produced.

Examples of alterations to used items may include, but are not limited to:

• Replacing a zipper or button(s),
• Mending or patching a hole,
• Taking in or letting out,
• Making size adjustments.
• Otherwise altering used items such as clothing, bedding, draperies, or other personal and household items when such alterations merely refit or repair the item for the use for which it was created or produced.

Example:
Your customer brings in a suit and asks you to make size adjustments. The suit doesn't have tags or labels attached and has clearly been worn. The alteration service charge is considered repair labor and is not taxable.

Supplies and Materials used to Perform Alterations on Used Items:

Generally, persons performing the alteration of used items are consumers, not retailers, of the supplies and materials furnished in connection with the alterations, and tax applies to the sale of the supplies and materials to such persons.

If the retail value of the supplies and materials you use to make alterations to a used item is more than 10 percent of the total charge for the alterations, or if you make a separate charge for the supplies and materials, you are considered the retailer of the supplies and materials and tax applies to the fair retail selling price of the supplies and materials to the customer.

If the retail value of the supplies and materials used to make the alterations are 10 percent or less of the total charge and you don't make a separate charge on the invoice, you are considered the consumer of the supplies and materials, meaning you should pay tax when purchasing the supplies and materials from your supplier.

You may not know at the time you purchase supplies and materials whether you will be considered the consumer or retailer. Therefore, you may pay tax on your purchases to your supplier when purchasing supplies and materials and later, for those transactions where you are the retailer, you may take a “Tax-Paid Purchases Resold” deduction on your sales and use tax return based on the cost of the supplies and materials.

Alternatively, you may purchase supplies and materials without paying tax, because you provided your supplier a valid resale certificate, and you later withdraw them to make alterations to a used item, where you are considered the consumer of the supplies and materials. As the consumer you must pay use tax based on your cost of the supplies and materials under "Purchases Subject to Use Tax" on your sales and use tax return.

For more information about issuing a resale certificate, see publication 103, Sales for Resale.

Making Alterations to Rented Items

Whether alteration or clothing tailoring services performed on an item you lease “rent” (for example, tuxedos) are taxable depends on if you paid tax when you acquired the item.

Generally, if you did not pay sales or use tax when you purchased the item from your supplier, the rental charges you make to your customers for the use of the item are taxable. Any alteration charges in connection with the rental of the item are taxable because the alterations are necessary for your customer to rent items in the form desired. However, if you paid sales or use tax when you purchased the item from your supplier, and the item will be rented in substantially the same form as acquired, the rental charges you impose on your customers are not taxable. The alteration charges in connection with the rental of the item are also not taxable.

Example 1:
You purchased a tuxedo you plan to rent and did not pay tax on your purchase. You rented the tuxedo to your customer and the customer requested alterations be made to the tuxedo prior to the rental. The charges for the tuxedo rental and alterations are taxable, regardless of whether the tuxedo is new or used.

Example 2:
You own a wedding dress rental business. You paid tax on your purchases of wedding dresses, which you will later rent to customers. Because you paid tax when you acquired the wedding dresses, your rental charges to your customer and alteration charges are not taxable.

For more detailed information on how tax applies to rented items, see publication 46, Leasing Tangible Personal Property.

Embroidery Services

Embroidery services may be taxable depending on whether the item is new or used.

Embroidering New Items:

Charges for embroidery services performed on new clothing items that you sell at retail are subject to tax.

Embroidering Used Items:

Unless there is something unusual about the embroidery work (such as converting the clothing into a work of art), charges for embroidery work on used clothing items are generally not taxable so long as the retail value of the thread is not more than ten percent of the total charge and the charge for the thread is not separately stated.

When You are a Dry Cleaning Business

As a dry cleaner, your charges for alteration services to repair old clothing items are generally not taxable. Depending on whether you also make alterations to new clothing and meet certain gross receipts thresholds based on your business operations, you may not be required to obtain a seller's permit.

Do I need a Seller's Permit?

If you only make alterations to old items (see “Making Alterations to Used Items” heading above), you are considered the consumer (meaning you should pay tax on your purchases to your supplier) for supplies and materials used and your charges for alteration services are not taxable. You will not be required to obtain a seller's permit so long as you don't make other types of taxable sales.

If you perform alteration services on new clothing (see “Making Alterations to New Items” heading above), you are regarded as a retailer of the alteration services and are required to obtain a seller's permit, unless:

• 75 percent or more of your establishment's total gross receipts represent charges for clothes cleaning or dyeing services, and
• No more than 20 percent of your establishment's total gross receipts during the preceding calendar year were from the alteration of clothing.

If both tests above are met and you do not make any other types of sales requiring you to obtain a seller's permit, your charges for alteration services performed on new items are not taxable and you will not be required to obtain a seller's permit.

Example:
You are a dry cleaner that provides clothing alterations. This year, you received $85,000 from your cleaning operations, $2,000 from your alteration services, and $300 from your sales of miscellaneous merchandise (laundry bags, lint brushes, etc.), resulting in $87,300 in total gross receipts for the year. Last year, you received $80,000 from cleaning, $1,000 from alterations, and $100 from sales of miscellaneous merchandise, resulting in $81,100 in total gross receipts for the prior year.

Since your receipts from your cleaning operations are greater than 75 percent ($85,000/$87,300 = 97%) and the amounts you received in the prior year from altering clothing were less than 20 percent of the prior year's total gross receipts ($1,000/$81,100 = 1%), you are considered a consumer, not a retailer, of the alteration services performed on new clothing.

Notes

1. If you sell miscellaneous merchandise (laundry bags, lint brushes, etc.), you must obtain a seller's permit and report the taxes due on your sales of the miscellaneous items. If you meet the thresholds provided above and are not regarded as performing taxable alteration services on new items, your charges for altering new clothing are not taxable. In this instance, you are the consumer of the supplies and materials used for your alteration services.

Alterations Services Performed on New Items by a Third Party

How tax applies to alteration services performed on new items by a third party depends on whether you are regarded as a consumer or retailer of alteration services performed.

As a dry cleaner, if you are the consumer (see heading “Do I need a Seller's Permit?” above) of alteration services performed on new clothing, and contract with a third party (for example, a tailor) for the alteration of a new item instead of performing the alteration yourself, you must pay tax on the alteration services charged by the third party.

As a dry cleaner, if you are the retailer (see heading “Do I need a Seller's Permit?” above) of alteration services performed on new clothing, and contract with a third party (for example, a tailor) for the alteration of a new item instead of performing the alteration yourself, you may issue a valid resale certificate to the third party performing the alteration services. The charge to your customer for alteration services is taxable.