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California Businesses and Use Tax Obligations

  • Jan 16, 2013 | Gail Cole

 California BOE Informs Businesses of Use Tax Obligations.

Use tax is what you pay when you  purchase something without paying sales tax. Often use tax is owed when you buy something from out-of-state. In some states, use tax must be paid even if sales tax is paid to a different state, in the event that state's sales tax is less than your home state's sales tax rate. Got that?

If not, you're probably not alone.

Increasingly, states are reminding residents about their use tax obligations. The California State Board of Equalization has a web page devoted to the topic, which explains when individuals need to pay use tax. Earlier this month, the BOE released a publication entitled "California Businesses: How to Identify and Report California Use Tax Due."

Use Tax Requirements Explained

The publication explains when it is necessary for businesses to file and pay use tax. Generally speaking, use tax in California must be paid when "physical merchandise" is purchased "from out-of-state sellers for use, storage, or consumption in California… [i]f the out-of-state seller does not collect and report the California use tax on your purchase… ."

If an out-of-state seller does charge California sales/use tax on your purchase, "you should be sure to obtain a receipt." The receipt should include your name and address, the item, purchase amount, and tax amount, and the seller's name, address, and California seller's permit number or use tax registration number.

The BOE reminds that businesses are required to pay use tax "at the full rate in effect at the California location where you will first use the merchandise." If you only pay the state sales/use tax rate (currently at 7.5%), you may be neglecting local and special district taxes. You are liable for those taxes.

It's important to note that the responsibility to pay use tax belongs to the consumer. States do not send folks a bill for use tax -- at least not yet. For now, states expect residents to act with integrity and remit the use taxes they owe.

Use Tax and Shipping

Shipping costs are generally exempt from California use tax if the following conditions are met:

  • Goods are delivered directly to the purchaser by common carrier, contract carrier, or US Mail;
  • Delivery, shipping, freight or postage charges are separately listed on the invoice; and
  • The charge for delivery is not higher than the actual cost for delivery.

Additional information about shipping is available at the BOE website under Shipping and Delivery Charges.

Read the full publication here: California Businesses: How to Identify and Report California Use Tax Due.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.