Applying Tax to Your Sales and PurchasesOpen All Close All
Retail sales of tangible personal property in California are generally subject to sales tax. Examples of tangible personal property include such items as furniture, giftware, toys, antiques, clothing, and so forth. In addition, some service and labor costs are subject to sales tax if they result in the creation of tangible personal property.
In some instances, retailers must pay use tax, rather than sales tax, to the CDTFA. The most common example of a purchase subject to the use tax is a purchase of an item for use in California from an out-of-state retailer. Out-of-state retailers who are engaged in business in this state are required to collect the use tax, whenever applicable, from the consumer at the time of making the sale.
The tax rate for sales and use taxes is the same.
Some sales and purchases are exempt from sales and use tax. Examples of exempt sales include, but are not limited to, sales of certain food products for human consumption, sales to the U.S. Government, and sales of prescription medicine. For more information on exempt sales, please refer to publication 61, Sales and Use Taxes: Exemptions and Exclusions.
Who is responsible for paying sales tax to the California Department of Tax and Fee Administration (CDTFA)?
As a seller, you owe the sales tax and are responsible for paying the correct amount to the CDTFA. If you do not pay the correct amount, you are subject to additional tax charges plus applicable penalties and interest charges.
Yes. Although you are required to pay and report sales taxes to the CDTFA, you may be reimbursed by your customer for the amount of tax you owe on a sale. For example, if you are required to pay $1.75 in sales tax on a sale, you may pass that cost on to your customer, provided it is agreed to as part of the sale. It is presumed that the customer agrees to pay the addition of the tax if:
- The sales agreement specifically calls for the addition of sales tax reimbursement;
- You list a separate amount of sales tax reimbursement on your receipts or invoices; or
- You post a sign on your premises stating that sales tax reimbursement will be added to all prices of taxable merchandise, or make a similar statement on price tags, advertising material, and other printed material directed to the purchaser.
If you include sales tax reimbursement in your prices, rather than itemizing it separately on your invoices or receipts, you must inform the buyer that tax is included. You can post this information at your premises in a location that is visible to purchasers, or you can include it on a price tag or in an advertisement (whichever is applicable). Use one of the following statements:
- All prices of taxable items include sales tax reimbursement computed to the nearest cent.
- The price of this item includes sales tax reimbursement computed to the nearest cent.
The sales and use tax rate that you are required to report and pay will vary depending on where you do business. You are responsible for the statewide tax rate and any applicable district taxes in cities and counties where you are engaged in business.
Generally, you are engaged in business in a district when you:
- Have any kind of permanent or temporary business location in the district, including a warehouse, salesroom, or office;
- Have any kind of representative or agent in the district, even temporarily, who makes sales, takes orders, or makes deliveries for you;
- Use your own delivery vehicles to regularly deliver merchandise into or within the district; or
- Receive rental income from the lease of merchandise located in the district.
For more information on being engaged in business and the correct district tax rates, please see publication 44, District Taxes (Sales and Use Taxes)
As a seller, you must collect, report, and pay district sales tax (called a transaction tax) or use tax on your taxable sales and leases if you:
- Have a business location or are engaged in business within the district.
- Lease, store, or consume tangible personal property in the district.
- Sell or lease vehicles, undocumented vessels, or aircraft that will be registered in the district.
You are engaged in business in a district if you are a retailer who:
- Maintains, occupies, or uses any type of office, sales room, warehouse, or other place of business in the district, even if it is used temporarily, indirectly, or through an agent.
- Has any kind of representative operating in the district for the purpose of making sales, making deliveries, or taking orders.
- Receives rental income from leases or tangible personal property located in the district.
There are some differences between the rules that apply to the payment of taxes in districts and the payment of sales and use taxes in general. You should refer to publication 44, District Taxes (Sales and Use Taxes), for more information.
If you are not subject to a district tax, you should report tax at the statewide rate, which is currently 7.25 percent.
There are several sources of information, including the following:
- The information is included with your sales and use tax return.
- You can read publication 105, District Sales and Sales Delivered in California, which provides a listing of district taxes, rates, and effective dates.
- You can call our Customer Service Center during working hours and speak to a representative at 1-800-400-7115.
If you collect more than the amount of tax due, you must either return the excess amount to the customer or pay it to the state.
Yes. The use of barter or exchanges is considered the same as making sales or purchases under the Sales and Use Tax Laws. The fair market value of the property or services received is normally the amount to which tax will apply.
- Assume that you are a retailer of electronic equipment and owe $500 for dental care. In place of cash, you provide a television set from your inventory as full payment. The transaction is considered a taxable sale, and you must report and pay tax based on the $500.
Yes. The value of a trade-in is considered taxable.
- If you sold a car for $20,000 and accepted a trade-in valued at $4,000 as partial payment, tax would be based on the $20,000 selling price (that is, you would not deduct the value of the trade-in from the sales price of the car being sold when computing sales tax).
You have the property delivered directly to your customer using a common carrier, the U.S. Mail, or an independent contractor
Tax does not apply to the delivery charges under these conditions if the charges are clearly stated as a separate entry on the invoice or other bill of sale. If the delivery charges are not stated separately, they are taxable.
- You sell a refrigerator and have it delivered by an independent contract carrier. On the invoice, you show a $750 charge for the refrigerator plus a separately stated $50 charge for delivery (the amount charged you by the carrier). Since the delivery charge is stated separately, tax applies only to the charge of the refrigerator ($750). If the invoice had shown a single charge of $800, tax would apply to the entire amount.
Note: If you charge more for delivery than your actual costs, the added amount is subject to tax. In the example above, if you had charged your customer $60 for delivery, but your actual delivery cost was $50 (the amount charged by the independent contract carrier), tax would apply to the additional $10 charge.
You use your vehicle to make the delivery
Tax applies to the delivery charges if you use your own vehicle, whether or not those charges are separately stated on the invoice.
- You sell a refrigerator and deliver it to your customer using your own vehicle. On the invoice, you show a $750 charge for the refrigerator plus a separately stated $50 charge for delivery. Tax applies both to the delivery charge and the charge for the refrigerator.
Note: Tax does not apply to delivery charges using your own vehicle if there is a written contract of sale, signed before delivery, that transfers ownership of the property to the purchaser prior to delivery.
Handling charges are generally taxable.
If you charge a single amount for delivery and handling (for example, the invoice shows a single amount for "postage and handling" or "shipping and handling"), the portion of the charge that represents handling is generally taxable, while the portion that represents delivery may or may not be taxable.
Note: It is important to use terms such as "delivery," "shipping," or "postage" on the invoice to represent delivery charges. A separately stated charge that says only "handling," for example, is not considered a delivery charge and the entire handling charge is taxable--even if postage or shipment charges are indicated on the package.
For more information on delivery charges, or information on how tax may apply to a specific transaction, please see Regulation 1628, Transportation Charges, or publication 100, Shipping and Delivery Charges. You can also contact our Customer Service Center at 1-800-400-7115 or your nearest CDTFA office.
If you make drop shipments or courtesy deliveries to consumers in California on behalf of out-of-state retailers, you are not responsible for the tax if the out-of-state retailer holds a California seller's permit or a Certificate of Registration – Use Tax. An out-of-state retailer who is required to hold either permit is considered the retailer and is responsible for collecting and reporting the tax.
However, you are considered the retailer and are generally responsible for the tax if both of the following apply:
- The out-of-state retailer is not required to hold a California seller's permit or Certificate of Registration-Use Tax.
- The retail sale of the property is subject to California sales and use tax.
If the California customer is purchasing the property for resale, you are not responsible for the tax if you obtain a valid resale certificate from the customer.
For reporting periods on and after January 1, 2001, drop shippers may report the selling price of drop-shipped merchandise using the methods described in Regulation 1706, Drop Shipments. This regulation includes a provision that for sales and use tax reporting purposes, a drop shipper may calculate the retail selling price of its drop shipments of property based on its selling price of the property to its direct customer, the out-of-state retailer, plus a markup of 10 percent. However, you may not use this calculation for drop shipments or courtesy deliveries of vehicles, vessels, or aircraft.
Tax is measured in United States dollars based on the conversion rate of the foreign currency as of the date of the contract for sale.
It is not possible to explain what is taxable for every type of business. You are encouraged to use any of the resources listed below to obtain answers to your questions. You may:
- Call our Customer Service Center at 1-800-400-7115.
- Visit our Industry & Tax and Fee Guides.
- Review our publications to understand what is taxable for your type of business.
- Request copies of the laws that apply to your business.
- Write to us for advice regarding the taxability of a particular sale or transaction. Our tax and fee laws can be complex and difficult to understand. If you have specific questions about this exemption and who or what qualifies, we recommend that you get answers in writing from us. This will enable us to give you the best advice and will protect you from tax, penalties and interest in case we give you erroneous information.
- Requests for written advice can be emailed to CDTFA or mailed directly to the CDTFA office nearest you.
- For more details, please see publication 8, Get It in Writing!
- Attend a basic class on how to report sales and use taxes. Review our Taxpayer Events and Education webpage to find out when the classes are offered.
- Contact your local CDTFA office and talk to a staff member.