California Sales Tax Guide
Chapter 4: Collecting and managing California sales tax
Once you've successfully registered to collect California sales tax, you'll need to start collecting it on taxable sales. Seems simple enough, right? We'll cover how to get your tax collection set up and offer some suggestions for keeping things organized in preparation for filing returns to the California Board of Equalization
How do I collect California sales tax?
How you collect California sales tax is influenced by how you are selling your goods. Generally speaking, California sales tax collection can be automated to make your life much, much more simple. Let's consider some common store situations.
- Marketplace: Marketplaces like Amazon or Etsy offer integrated sales tax rate determination and collection for a small fee. You'll be able to set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.
- Hosted Store: Hosted store solutions like Shopify or Squarespace offer integrated sales tax rate determination and collection. Just like marketplaces, hosted stores will offer sellers a dashbaord environment where they can manage their California sales tax collection.
- Mobile Point of Sale: Mobile point of sale (POS) 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.
- Brick and Mortar: Brick and mortar POS solutions like Revel allow users to set a prevailing sales tax rate that applies to the store location. New tax groups can then be created to allow for specific product tax rules.
As mentioned, some store solutions will charge for tax management. Amazon, for example charges a fee of 2.9%, but it automates California sales tax collection and will save you loads of time. For a small business owner, this is money well spent.
What goods are eligible for sales tax exemption in California?
Some goods are exempt from sales tax in California regardless of who the buyer is or what the goods will be used for. Examples include most non-prepared food items, food stamps, and medical supplies and drugs.
Other goods depend on California sales tax rules. We recommend businesses review the laws put forth by the California Board of Equalization to understand which goods require sales tax to be collected (and under what conditions).
Who is eligible for California sales tax exemptions?
Under California law, taxable goods may be eligible for sales tax exemption depending on the type of buyer or the manner in which the goods will be used. A good example of this is a merchant purchasing goods for resale. The California California Board of Equalization holds that such purchases are tax exempt.
Other common examples include government agencies, non-profit organizations, religious groups, and out-of-state buyers (should your business not have nexus in their home state).
What should I do if my customer is exempt from sales tax in California.
Selling to buyers who are tax-exempt is something every business owner eventually encounters. The responsibility here resides on the seller. It is up to you to collect a California sales tax exemption certificate at the point of sale and to keep it on file. Such certificates must be produced upon request in the event of an audit to justify tax-exempt sales. Failure to produce the tax exemption certificate may result in the outstanding tax being passed on to the seller.
What happens if I lose a California sales tax exemption certificate?
We encourage anyone collecting sales tax in California to think of tax exemption certificates as worth far more than the paper they are written on. If you are audited and cannot produce an exemption certificate, you may be held responsible for the uncollected sales tax by the California Board of Equalization. In some cases late fees and interest will be applied. This can result in very large, unexpected bills.
Does California have a sales tax holiday?
Across the US, there are currently four scenarios in which buyers may participate in a sales tax holiday: back-to-school season, hurricane season, when purchasing ENERGY STAR appliances, or when purchasing firearms.
The California Board of Equalization currently supports the following sales tax holiday dates:
- Back-to-school tax holiday: None
- Disaster preparedness tax holiday: None
- ENERGY STAR appliance tax holiday: None
- 2nd Amendment tax holiday: None