Sales Tax APIThe same engine Zamp customers use.California imposes both state sales tax and district tax rates, meaning that the rate will vary depending on the tax district in which you’re providing an item or service. California’s statewide sales tax rate is 6.25%. Most local jurisdictions impose district tax rates ranging from 0.10% to 2.00%.
Calculating the correct California sales tax rates is essential so you’re not under- or overcharging your customer base. If you don’t calculate the correct rate, you can face severe penalties from the state when it comes time to file your sales tax returns and remit money to the state.
We’ll break down the key information you need to know about California sales tax, including how it works, product taxability, and more, in the sections below.
How California Sales Tax Works
If you own or operate a business in California, you’re required to collect sales tax on sales revenue from your customers when:
- You have reached sales tax nexus in California.
- You sell taxable products or services in California and generate taxable income./
What Creates Sales Tax Nexus in California?
California recognizes several types of nexus that trigger sales tax collection obligations:
Economic Nexus
Businesses with sales of tangible personal property exceeding $500,000 during the preceding or current calendar year.
Physical Nexus
Maintaining any physical presence in California creates nexus, including:
- Retail stores or offices
- Warehouses or distribution centers
- Manufacturing facilities
Employee Nexus
Having personnel in California establishes nexus, including:
- Employees or contractors
- Sales representatives
- Installation or service personnel
- Third-party affiliates
How to Collect Sales Tax in California
California has two different tax types that apply to most sales:
- Sales and use tax
- District transaction tax (this includes cities/local governments, counties, and other special taxing jurisdictions)
The California sales tax collection works differently based on buyer and seller locations.
How to Collect Sales Tax on Intrastate California Sales
A California sale is considered “intrastate” if the buyer and seller are both located in California. In this case, you should charge the sales tax rate of the sale’s origination point.
You also need to collect district taxes on sales made to buyers who live in the same district where you “engage in business.”
But if the buyer is from outside the district where your business is located, then you are only required to charge the California state sales tax rate to those buyers.
For instance, let’s say your business is located in Bodema, Sonoma County, and sells to a buyer in Beverly Hills, Los Angeles County, then you should charge them the California state sales tax.
How to Collect Sales and Use Tax on Interstate California Sales
A California sale is considered “interstate” if the item ships from outside California and the seller isn’t otherwise engaged in business in the state.
In this case, the seller generally collects sales tax based on the rate at the buyer’s location.
For example, your business is located in Leander, Idaho, and sells to a buyer in San Diego, California. You’d charge the buyer the combined state and local San Diego sales tax rate.
For more information, explore the California Tax Guide for Out-of-State Retailers.
Should You Collect Sales Tax on Shipping Charges in California?
No. Shipping charges are not subject to sales tax in California as long as the delivery is made by a common carrier, U.S. mail, or an independent contractor.
However, this only applies if the shipping charge is the same as the actual charge for delivery.
Do I Have to Collect Sales Tax from California Customers if I Sell on Amazon or Walmart?
Yes, marketplaces like Amazon and Walmart are required to collect sales tax on behalf of third-party sellers, as per California tax law.
If you have sales tax nexus in California, remember that you are still required to collect sales tax on your other non-marketplace sales in the state.
Taxable Products in California
Usually, most tangible personal property is subject to sales tax in California as well as in other states. This refers to items like clothing, toys, furniture, antiques, and giftware. However, some states exempt taxes on necessities, such as medication and food items.
But what about intangible goods? Digital goods, such as movies, music, and eBooks, as well as SaaS products, are subject to sales tax in certain states but not in California.
Let’s take a detailed look at what items are taxed in California:
Are Groceries Taxable in California?
Like most states, groceries are exempt from taxation in California.
Is Clothing Taxable in California?
Yes, clothing is subject to sales tax in California.
However, some charitable organizations or thrift stores that provide clothing to those in need are exempt from charging sales tax on those items.
Are Digital Products Taxable in California?
California doesn’t enforce a sales tax on digital goods.
In the United States, digital goods generally consist of the following:
- Video game downloads
- Movie and music downloads
- Ringtones
- Digital books and e-books
Is Software-As-A-Service (Saas) Taxable in California?
California doesn’t collect sales tax on SaaS products.
Since SaaS is a relatively new concept, many states haven’t yet reached a consensus on whether to collect sales tax on these products.
However, SaaS companies are liable to pay income tax in California.
Some states that tax SaaS products can even change their tax rates based on whether the product is used in a personal or commercial setting.
Are Services Taxable in California?
Services are generally non-taxable in California. This includes services such as digital marketing, content writing, videography, and software development.
However, there are some exceptions. California follows the True Object concept. This means that the amount received for services that are a part of the sale or lease of tangible personal property (TPP) is taxable, but only if the true object of the sale is the transfer of the TPP.
However, if the true object is a service, sales tax does not apply even if you transfer some property.
Tax-Exempt Items
According to the California Department of Tax and Fee Administration (CDTFA), several categories of items are exempt from sales tax.
These are:
- Items considered necessities of life
- Items that provide a general public benefit
- Items that provide an industry benefit
- Items excluded by definition
- Other items
Some examples are:
- Sales of food for human consumption except those sold in a heated condition (except hot bakery items or hot beverages, such as coffee)
- The sale and use of animal life or feed for animal life, seeds, and plants, which normally constitute food for human consumption.
- Sales of prescribed medicines or medical supplies, like insulin syringes, breast pump-related products, and prosthetic devices.
- The sale of gas, electricity, and water, including steam and geothermal steam, brines, and heat delivered through mains, lines, or pipes.
Now, if your business has nexus in California and sells taxable products in California, you’ll need to obtain a California sales tax license. Let’s take a look at how you can get one.
How to Register for a Seller’s Permit
All businesses that have nexus in the state are required to register for a seller’s permit, collect California sales tax, file a sales tax return, and remit it to the state. The seller’s permit must be obtained through the California Department of Tax and Fee Administration (CDTFA).
Registration Process
Register online at the CDTFA website by providing:
- Business information and structure
- Ownership details
- Estimated monthly tax liability
- Banking information for payments
Special Permit Requirements
- Wholesalers: Must obtain a seller’s permit even though they don’t collect sales tax from consumers. This permit serves as a California resale certificate.
- Temporary Sellers: Seasonal or temporary sellers (Christmas tree farms, craft fair vendors) need temporary seller’s permits for sales activities lasting no longer than 30 days at one location.
California Sales Tax Filing and Payment Requirements
California assigns filing frequencies and due dates when you register for your seller’s permit. The state uses a unique system that may require monthly prepayments with quarterly filing for high-volume sellers.
California Sales Tax Filing Frequencies
California determines your filing schedule based on average monthly tax liability:
- Monthly
- Quarterly
- Annually
California’s Quarterly Prepay System
High-volume retailers must prepay sales tax monthly while filing returns quarterly. This system ensures consistent cash flow for the state while reducing administrative burden for businesses.
Payment Methods
File and pay your California sales tax return online through the CDTFA website. The system calculates your total liability and processes payments electronically.
