California Sales Tax: Common and Unusual Exemptions
- Jan 13, 2016 | Bethany McDonald
Although it’s a hub for tech and Internet companies like Facebook, Google, and Apple, California is one of the least-favorable states when it comes to tax rates and policies. As tax season approaches, most small businesses that operate in California will be dreamin’ of exemptions to reduce their tax burden.
Common Sales Tax Exemptions
Common California sales tax exemptions include those for necessities of life, including most food and health-related items. Groups that provide a general public benefit, such as museums, nonprofit, religious, and educational organizations, also benefit from sales tax exemptions when purchasing or selling certain items, such as artwork, promotional and commemorative items, and food and meal items, so long as the profits are used to further the organization’s purpose.
If you’re an ecommerce business that doesn’t maintain a physical presence or have a sales representative in California, you don’t need to collect sales tax from California customers. If you do have a presence, or nexus, in California, you are required to collect sales tax on most items.
Exemptions include items for resale, cold food products, and goods delivered outside of the state. In addition, sales of electronic data, including software, apps, eBooks, and digital downloads, are not taxable in this state, as they are not considered physical, tangible items. However, if you provide the customer with a backup of the digital material on a CD, flash drive, or other physical storage device, then the entire transaction becomes taxable.
Unusual Sales Tax Exemptions
California tax law has more than a few odd rules and exemptions that drive businesses crazy. For example, while printed books, CDs, and DVDs are taxable, the digital versions are not. In addition, after a 1991 ruling, magazines purchased in a store became taxable, while those received through subscriptions stayed tax-free.
Planning on doing some landscaping? Maple, pine, and other similar trees are taxable, while fruit trees and shrubs that technically can produce food for human consumption are not.
Check out the following list to see if your business can take advantage of some odd, but legitimate, exemptions:
- Racehorse breeding stock: The sale and purchase of racehorses are partially exempt from sales tax, so long as the horse is capable of breeding and the buyer intends to race its foals.
- Endangered animals and plants: The sale and use of endangered animals and plants are exempt from tax if both the seller and the purchaser are nonprofit organizations.
- Pets from rescue organizations: While sales tax applies to purchases of animals from breeders and pet shops, sales from nonprofit or government animal shelters are exempt from sales tax.
- Gold and silver coins and bullion: The bulk sale ($1 thousand or more) of gold and silver bullion and coins, as well as the sale of commemorative “California Gold” medallions, is exempt from sales tax.
- Veterans commemorative wearables: The sales of most veterans’ charitable groups’ commemorative wearables, such as bracelets, pins, and flowers, are exempt from sales tax.
Do you have other questions regarding California sales tax exemptions? Check out our Guide to California Sales Tax.