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:
Goods and Services That Are Taxable
Register for Sales Tax Collect Sales Tax and Submit Your Sales Tax Return
What Are the Taxable Goods and Services?
The first step in sales tax compliance is determining if the items or services your firm offers are taxable in California.
Traditional Products and Services
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.
Digital Products and Services
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.
How to Register for Sales Tax in California
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:
Your personal identification number (corporate officers excluded)
Your birth date
Your state ID number, driving license number, or other form of identification (e.g., passport, military ID)
Bank names and locations where you have an account
Supplier names and addresses
Bookkeeper or accountant’s name and address
Personal references’ names and addresses
Expected monthly average sales and the percentage of those sales that are taxed
Your electronic mail address
If you buy an established firm, you must give the prior permit information as well.
Sales Tax Collection
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
Retail 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.
Sales inside the state
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:
Delivery to a Customer in Your City
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.
Shipping to a Customer in Your Area
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.
Shipping to a Customer Who Lives Outside of Your City and County
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.
Out-of-State Purchases
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:
A physical place, such as an office, retail shop, or warehouse.
An employee who works from home or as a roaming sales representative.
An affiliate marketer
Dropshipping from a third-party vendor.
A temporary physical site, such as a festival or fair booth.
Submit Your Sales Tax Return
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.
How to File a Claim
Businesses in California are required to file sales tax forms and make sales tax payments online.
How Frequently Should You File?
The frequency with which you must submit is determined by the total amount of sales tax collected by your firm.
Annual filing: If your company receives less than $100.00 in sales tax each month, you must submit returns annually.
Quarterly filing: If your company receives between $100.00 and $1200.00 in sales tax each month, you need submit quarterly reports.
Monthly filing: If your company receives more than $1200.00 in sales tax each month, you must submit monthly returns.
Deadlines for Filing
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:
Q1 (January – March): April 30
July 31st, Q2 (April – June)
Q3 (July-September): October 31
Q4 (October – December): January 31
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.
Penalties for Filing Late
For late submission, California assesses a fee of 10% of the entire amount of sales tax owed.
Following Steps
Use our Sales Tax Calculator to look up sales tax rates.
Check out our Accounting for Small Businesses guide or go straight to accounting software evaluations.
Sign up for our Business Center to get access to essential resources for your company.
California Helpful Links
Equalization Commission District Taxes (Publication 44)
Publication 44 is a detailed reference to comprehending California’s District Sales Taxes. It covers the fundamentals as well as any unusual scenarios that may arise and how to deal with them.
Publication 73 of the Board of Equalization – Your California Seller’s Permit
Your California Seller’s Permit is a comprehensive guide on acquiring and canceling a seller’s permit, as well as collecting and reporting sales tax in the state of California.
Publication 100 of the Board of Equalization – Shipping and Delivery Fees
This document provides a brief summary of advice and tips for company owners that must transport items throughout California. It also includes a useful reference table for certain shipping circumstances, which may assist answer queries regarding applying the correct sales tax to purchases.
Equalization Commission Publication 105 – Delivered Sales and District Taxes
Publication 105 is significantly lengthier than Publication 100 and is intended to assist outline tax rules as they pertain to District Taxes.