The California Sales Tax Most Sellers Get Wrong
- Sales Tax
- March 8, 2016 | Laura McCamy
If you have sales tax nexus in California you know that the state is a crazy quilt of different tax rates. While the basic statewide sales tax rate is 7.5 percent, many cities and counties have tacked on additional district taxes. Worse, California sales tax rules for district taxes have some tricky exceptions that are easy to overlook.
The good news for ecommerce sellers is that California is one of the states that base the sales tax rate you should charge your customers on your location (origin-based), not where you ship (destination-based). If your California operations are located in a jurisdiction where the local sales tax rate is 8.75 percent, you charge 8.75 percent California sales tax to all your customers in the Golden State.
Engaged in Business
Except when you can’t. If you are “engaged in business” in the customer’s district, as defined by the California Board of Equalization, you must charge the sales tax that applies to the customer’s address, not your business address.
California’s definition of “engaged in business” includes some of the same triggers as state nexus: maintaining a physical location in the district or having an employee operating in that district.
The state adds a couple of twists, however. If your business collects rent from leasing property in a sales tax district, you will need to charge the sales tax rate for that district when you ship orders to customers who live there. The sale or lease of vehicles and vessels comes with special requirements for district taxation as well.
In addition, personal delivery (but not third party shipping) also fits the California definition of “engaged in business.” For example, if you deliver an order to a customer in a different sales tax district using your own vehicle, you should charge the sales tax rate for the district you’re delivering to. If you send the order via US Mail, the sales tax rate of your home district applies.
Of course, if you sell at events in different California sales tax districts you will need to charge the applicable local sales tax on your sales at each event.
Ever-changing District Taxes
To add to the complexity, many local sales taxes are temporary and expire, while new ones come into effect through legislation and ballot initiatives. In addition, some district taxes may apply to limited areas within a city rather than an entire city or county.
A number of California cities have taken pity on the plight of the ecommerce seller and created an online database of sales tax rates by address. If you need a bit more of a boost, sales tax software may be just the ticket to keep you up to date on the latest California district taxes.