California’s sales tax is 7.25%.
The maximum local and county rate is 2.00%.
This tutorial breaks down the process of complying with California’s sales tax law into four simple steps:
The first step in sales tax compliance is determining if the items or services your firm offers are taxable in California.
In California, purchases of tangible goods such as furniture, household appliances, and automobiles are subject to sales tax.
Groceries and prescription drugs are free from sales tax.
Gasoline (2.25% plus relevant district taxes) and agriculture and industrial equipment (3.3125% plus applicable district taxes) are taxed at a lower rate in California.
In California, several services are subject to sales tax. Visit the website of the California Society of CPAs for a comprehensive list of taxable services.
In addition, the California State Board of Equalization has issued a detailed reference on sales tax exemptions and exclusions.
A digital item or service is anything that is supplied electronically, such as a music downloaded from iTunes or a movie bought from Amazon.
Businesses in California are not required to collect sales tax on the sale of digital products or services.
California, on the other hand, has one exemption to this restriction. Businesses are required to collect sales tax on pre-written computer software offered online.
If you’ve decided that you must charge sales tax on part or all of the items and services your company offers, the next step is to apply for a seller’s licence.
This enables your company to collect sales tax on behalf of the municipal and state governments.
You will need the following information to register:
After obtaining your seller’s licence and starting your company, you’ll need to figure out how much sales tax to charge various consumers. It is critical for company owners to collect the right rate of sales tax to avoid penalties and the danger of expensive audits.
When computing sales tax, consider the following types of transactions:
Store Sales Shipping Within-State Sales Outside-State Sales
For conventional company owners who sell products or services on-site, calculating sales tax is simple: all sales are taxed at the rate determined by the store’s location.
Here’s an illustration of how this situation may look:
In San Diego, California, Mary owns and operates a bookshop. Because books are taxed in the state of California, Mary charges a flat 7.75% sales tax on all purchases. This includes California’s 7.250% sales tax and Mary’s 0.500% local district tax.
When delivering to California clients, your tax rate will be determined by the county and local tax districts that your company and the customer share. The three instances below demonstrate this concept:
You will be responsible for collecting state, county, and municipal sales tax when shipping to clients in the same city and county as your company.
You will be responsible for collecting state and county sales tax when delivering to clients in a different city but within the same county as your company. You will not be liable for collecting municipal sales tax on your clients’ behalf.
When delivering to consumers outside of your company’s city and county, you just need to collect sales tax at the state’s base tax rate. You will not be liable for collecting sales tax on behalf of your consumers in the county or city.
Businesses in California are only required to pay sales tax on out-of-state sales if they have a presence in other states.
Nexus indicates that the company has a physical presence in another state.
Common nexus types include:
You’re ready to submit your sales tax return now that you’ve obtained your California seller’s permit and understand how to charge the correct amount of sales tax to all of your customers. You avoid penalties and fines, be sure to meet all filing dates.
Businesses in California are required to file sales tax forms and make sales tax payments online.
The frequency with which you must submit is determined by the total amount of sales tax collected by your firm.
The deadline for all California sales tax returns is the last day of the month, unless it is a weekend or federal holiday, in which case the deadline is postponed to the following working day.
Deadlines for Filing California Sales Tax in 2018
Annual filing deadline: January 31.
Quarterly reporting:
Monthly filing: The last day of the next month, or the next business day, e.g., April 30 for March, or May 31 for April.
For late submission, California assesses a fee of 10% of the entire amount of sales tax owed.
Use our Sales Tax Calculator to look up sales tax rates.
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