California sales tax guide

All you need to know about sales tax in the Golden State

Sales tax 101

Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. California first adopted a general state sales tax in 1933, and since that time, the rate has risen to 7.25 percent. On top of the state sales tax, there may be one or more local sales taxes, as well as one or more special district taxes, each of which can range between 0.1 percent and 1 percent. Currently, combined sales tax rates in California range from 7.25 percent to 10.25 percent, depending on the location of the sale.

As a business owner selling taxable goods or services, you act as an agent of the state of California by collecting tax from purchasers and passing it along to the appropriate tax authority. As of July 1, 2017, sales and use tax in California is administered by the California Department of Tax and Fee Administration (CDTFA). Previously, it was administered by the California State Board of Equalization.

Any sales tax collected from customers belongs to the state of California, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.

When you need to collect California sales tax

In California, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a pseudo-tax collector.

To help you determine whether you need to collect sales tax in California, we've created a simple questionnaire: 

  1. Do you have nexus in California?

  2. Are you selling taxable goods or services to California residents?

  3. Are your buyers required to pay sales tax?

If the answer to all three questions is yes, then you’re required to collect the correct amount of sales tax per sale, file sales tax returns on time, and remit tax to the state.

Failure to collect California sales tax

If you meet the criteria for collecting sales tax (nexus in California and selling taxable goods or services to taxable residents) and choose not to collect sales tax, you’ll be held responsible for the tax due, plus applicable penalties and interest.

It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.

Sales tax nexus

The need to collect sales tax in California is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.

Nexus triggers

Sales tax nexus in all states used to be limited to physical presence: A state could require a business to collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.

In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.

Physical presence still triggers a sales tax collection obligation in California. But out-of-state sellers can establish sales tax nexus in California in other ways as well. 

Out-of-state sellers

Out-of-state sellers with no physical presence in California can establish sales tax nexus in the following ways:

Affiliate nexus: Having ties to businesses or affiliates in California. This includes, but isn’t limited to, the design and development of property sold by the remote retailer, or solicitation of sales of goods on behalf of the retailer.

Click-through nexus: Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise, and:

  • The total cumulative sales price from such referrals is more than $10,000 within the 12 preceding months; and

  • The retailer’s total cumulative sales of tangible personal property to purchasers in California within the 12 previous months exceeds $1,000,000.

Economic nexus: Having a certain amount of economic activity in the state. For sales made on and after April 1, 2019, a remote seller that makes taxable retail sales delivered into California must register, collect, and remit California sales tax if the remote seller meets either of the following criteria (the economic thresholds):

  • The remote seller's taxable retail sales into California during the current or prior calendar year exceeds $100,000; or
  • The remote seller made retail sales for delivery into California in 200 or more separate transactions during the current or prior calendar year.

Economic nexus can impact in-state sellers as well as out-of-state sellers. California businesses meeting the economic nexus threshold in a district are required to collect all of that district’s local taxes.

Inventory in the state: Storing property for sale in the state. This includes merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in California in a warehouse owned or operated by Amazon.

Marketplace sales: Making sales through a marketplace. Starting April 1, 2019, a remote seller whose sales into the state (including but not limited to sales made through one or more marketplaces) surpass the $100,000 sales/200 transactions threshold is responsible for collecting and remitting California sales tax.

Some marketplaces collect and remit on behalf of their sellers. Businesses should contact all marketplaces through which they sell to determine which, if any, collect and remit on their behalf. 

Trade shows: Attending conventions or trade shows in California. You may be liable for collecting and remitting California use tax on orders taken or sales made during California conventions or trade shows. However, you generally would not have nexus if all the following are true:

  • You’re in the state solely to engage in convention or trade show activities;

  • You or your representatives don’t engage in convention and trade show activities for more than 15 days in California during any 12-month period; and

  • You didn’t derive more than $100,000 of net income from convention or trade show activities during the prior calendar year.

If you have sales tax nexus in California, you’re required to register with the CDTFA and to charge, collect, and remit the appropriate tax to the state.

For more information, see California will tax sales by out-of-state sellers starting April 1, 2019, and the California Department of Tax and Fee Administration

Trailing nexus

Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. In California, trailing nexus generally lasts through the quarter the retailer ceases nexus-triggering activities in the state, plus the following quarter.

Fulfillment by Amazon (FBA)

If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. The Avalara TrustFile FBA Inventory Report can help demystify FBA shipping and storage patterns. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in California.

If you sell taxable goods to California residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. We recommend you work with a tax professional to determine whether you have California nexus. The team at Avalara Professional Services can help get you started.

Sourcing sales tax in California: which rate to collect

In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing). California does a little of each.

California is a modified origin-based state: State, county, and city taxes are based on the ship-from address, but district taxes are based on the ship-to address.

For example, if you’re based in California and you make a sale to another location in the state, the city, county, or state taxes are based on your location as the seller (origin sourcing) while district sales taxes are based on the customer’s location (destination sourcing).

For additional information, see the California Department of Tax and Fee Administration and the CDTFA Tax Guide for Out-of-State Retailers.

Getting registered

After determining you have sales tax nexus in California, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your California business license and sales tax registration.

How to register for a seller's permit

You can register for a California seller’s permit online through the CDTFA. To apply, you’ll need to provide the CDTFA with certain information about your business, including but not limited to:

  • Business name, address, and contact information

  • Federal EIN number

  • Date business activities began or will begin

  • Projected monthly sales

  • Projected monthly taxable sales

  • Products to be sold

Cost of registering for a seller's permit

There is currently no cost to register for a California seller's permit.

Acquiring a registered business

You must register with the CDTFA if you acquire an existing business in California. The state requires all registered businesses to have the current business owner’s name and contact information on file.

Streamlined Sales Tax (SST)

The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).

As of October 2018, California is not an SST member state.

Collecting sales tax

Once you've successfully registered to collect California sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the CDTFA, and keep excellent records. Here’s what you need to know to keep everything organized and in check.

How you collect California sales tax is influenced by how you sell your goods:

Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions like Revel allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.

Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where California sales tax collection can be managed.

Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.

Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.

California sales tax collection can be automated to make your life much, much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.

Tax-exempt goods

Some goods are exempt from sales tax under California law. Examples include most non-prepared food items, food stamps, and medical supplies.

We recommend businesses review the laws and rules put forth by the CDTFA to stay up to date on which goods are taxable and which are exempt, and under what conditions.

Tax-exempt customers

Some customers are exempt from paying sales tax under California law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.

Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.

Misplacing a sales tax exemption/resale certificate

California sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the CDTFA may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.

Sales tax holidays

Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year. As of October 2018, however, there are no sales tax holidays in California.

Filing and remittance

You're registered with the California Department of Tax and Fee Administration (CDTFA) and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the state of California, your role is that of intermediary to transfer tax dollars from consumers to state tax authorities.

How to file

Once you’ve collected sales tax, you’re required to remit it to the CDTFA by a certain date. The CDTFA will then distribute it to the appropriate state and local agencies.

Filing a California sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to CDTFA. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.

You may complete California sales tax returns on paper and mail them to the CDFTA or file returns electronically online. Online filing is generally recommended.

Filing frequency

The CDTFA will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments typically ask larger businesses to file more frequently. See the Filing due dates section for more information.

California sales tax returns and payments must be remitted at the same time; both have the same due date.

Online filing

Filing online is generally preferred over filing paper returns. You may file directly with the CDTFA by visiting their site and entering your transaction data manually. This is a free service, but preparing California sales tax returns can be time-consuming — especially for larger sellers.

Using a third party to file returns

To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about California sales tax code.

Avalara TrustFile provides a quick and easy way to prepare and efile sales tax returns. Users can sign up and use the service to prepare returns for free for a limited time. 

Filing when there are no sales

Once you have a California seller's permit, you’re required to file returns at the completion of each assigned collection period whether or not any sales tax was collected. When no sales tax was collected, you must file a "zero return.”

Failure to submit a zero return can result in penalties and interest charges.

Closing a business

The CDTFA requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.

Timely filing discount

Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount. As of October 2018, the CDTFA does not offer sales tax filers a discount.

Filing due dates

It's important to know the due dates associated with the filing frequency assigned to your business by the California Department of Tax and Fee Administration. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.

The CDTFA requires all sales tax filing to be completed by the last day of the month following the assigned filing period. Below, we've grouped California sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.

California 2018 monthly filing due dates

Reporting period Filing deadline
January February 28, 2018
Febuary April 2, 2018
March April 30, 2018
April May 31, 2018
May July 2, 2018
June July 31, 2018
July  August 31, 2018
August October 1, 2018
September October 31, 2018
October November 30, 2018
November December 31, 2018
December January 31, 2019

California 2018 quarterly filing due dates

Reporting period Filing deadline
Q1 April 30, 2018
Q2 July 31, 2018
Q3 October 31, 2018
Q4 January 31, 2018

California 2018 annual filing due dates

Reporting period Filing deadline
January 1 - December 31, 2018 January 31, 2019

California fiscal yearly due dates

Reporting period Filing deadline
July 1 - June 30 July 31

Late filing

Filing a California sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on Penalties and interest .

In the event a filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the CDTFA may grant you an extension. However, you may be asked to provide evidence supporting your claim.

Penalties and interest

Hopefully you don't need to worry about this section because you're filing and remitting California sales tax on time and without incident. However, in the real world, mistakes happen.

If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.

If you are in the process of acquiring a business, it’s strongly recommended that you contact the CDTFA and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding California sales and use tax liability.

Shipping and handling

Because California is the most populous state in the U.S., and the fifth largest economy in the world, most businesses have customers in the Golden State. If you’re collecting sales tax from California residents, you’ll need to consider how to handle taxes on shipping and handling charges.

Taxable and exempt shipping charges

California sales may apply to charges for shipping, delivery, freight, and postage. Charges for handling are generally taxable.

The general rule of thumb in California is that if the sale is exempt, related delivery charges are exempt. However, if the sale is taxable, delivery-related charges may be fully taxable, partially taxable, or non-taxable.

California sales tax usually doesn’t apply to separately stated delivery charges when delivery is by common carrier, U.S. mail, or an independent contractor. However, California sales tax does apply to delivery charges when you make a delivery in your own vehicle(s).

Tax may also apply to drop shipping scenarios. If you use drop shipping to deliver items to customers in California, you may be responsible for collecting and reporting tax.

The CDTFA recommends keeping clear invoices and records for all transactions, with specific terms to describe delivery-related charges. Acceptable forms of documentation include but are not limited to:

  • Bills of lading
  • Express receipts or express company invoices
  • Freight invoices
  • Parcel post receipts or shipment records
  • Sales invoices showing transportation charges and shipping instructions

If your records don’t show the actual cost of an individual delivery, tax generally applies to the entire charge for delivery of a taxable sale.

There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in California and sales tax should be taken directly to a tax professional familiar with California tax laws. Avalara Professional Services can help.

For additional information, see CDTFA Publication 100, Shipping and Delivery Charges.

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