California: How District Taxes Apply to Delivered Sales
- Apr 11, 2014 | Gail Cole
Most retailers located in states with a sales tax know, hopefully, that sales tax must be collected and remitted on all taxable sales. That’s the easy part. Knowing exactly which rate to apply to what sale is a bit more complicated, especially when delivery is part of the equation.
With that in mind, the State Board of Equalization (SBE) is working to help taxpayers understand their sales and use tax obligations. SBE recently published updated information about drop shipping and sales tax. Now it has released updated information about district taxes and delivered sales.
Special tax districts
The California state sales tax rate is 7.5%. However, the state allows the imposition of special transaction sales and use taxes when voter approved. The rate of sales tax in districts with special transaction taxes is the state rate plus the special transaction rate. Rates therefore vary between districts, and businesses shipping or delivering products into special tax jurisdictions must apply the correct rate.
Generally, the rule of thumb is as follows:
- Deliveries made outside of all special tax districts are subject to the state rate only;
- Deliveries made inside a special tax district by a business that is engaged in business in that district are subject to the state rate plus the district rate; and
- Deliveries made inside a special tax district by a business that is not engaged in business in that district are subject to the state rate only.
A business is considered to be “engaged in business” if it:
- Has any kind of business location in the district, temporary or permanent;
- Has any kind of representative or agent in the district, even temporarily;
- Uses its own delivery vehicles to regularly deliver merchandise into or within the district; or
- Receives rental income from the lease of merchandise located in the district.
If a special district’s special district tax is not collected by the seller, the buyer is liable for it. Businesses not required to collect the special district tax may collect it as a courtesy to customers. Those that do should report it on the Schedule A of their tax return.
Registered sellers of vehicles
Registered sellers of aircraft, vehicles or undocumented vessels should apply “the tax rate in effect at the California location” where the customer will register or license the vehicle, etc. This applies to delivery sales as well.
Please see BOE Publication 105 for additional information.
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