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As a California business, you will have to know what the sales tax is for the state and, depending on whether your local jurisdiction adds a tax, what it is for the local jurisdiction. This discretionary tax is tacked onto the state’s sales tax. California also charges a use tax and transient rental taxes.
Californa also refers to “jurisdictions” as “districts.” The state also refers to “sales tax” as “transaction” taxes to differentiate from use taxes. A business pays a use tax if it does not pay sales tax on tangible personal property and does not resell the property.
Types of taxes
The State of California has a base tax rate of 7.25 percent for transactions (sales tax). It also charges a use tax, district tax (discretionary sales surtax), and charges out-of-state retailers who conduct transactions in California sales, district, and use taxes.
Sales tax (Transaction tax)
A transaction tax is a sales tax that California charges on any transactions, whether the business initiates the tax in or out of the state. On top of the 7.25 percent transaction sales tax, businesses must add district taxes. Figuring sales tax in California can be complex, especially if you conduct business online. You can find out exactly what to charge by looking up a tax rate by address.
The use tax rate is a tax a business pays on tangible personal property that it uses in the business. These items are not for resale. California does not require one district to charge the taxes of another district. However, as a courtesy, districts should – and must notify the purchaser as to whether it does or not. If not, the business must pay the use tax based on its district tax percentages.
Each district has its own tax – and some districts have more than one tax. District taxes — local taxes — are always changing. Some districts have sunset dates for taxes – this is a date when a tax automatically ends. Businesses must always check district tax rates because of the frequency of which they change.
For example, Alameda County and Alameda City have several district tax rates. The county collects:
- 0.50 percent for the Bay Area Rapid Transit District. This tax has no sunset date.
- 0.50 percent for the Alameda County Transportation Commission 2002, which has a sunset date of March 31, 2022.
- 0.50 percent for the Alameda County Essential Health Care Services Transactions and Use tax, which has a sunset date of June 30, 2034.
- 0.50 percent for the Alameda County TransportationCommission Transactions and Use Tax with a sunset date of June 30, 2041.
- 0.50 percent for the Alameda County Transactions and Use Tax with a sunset date of March 31, 2031.
Alameda city also has a district tax for City of Alameda Transactions and Use tax for 0.50 percent with no sunset date.
Thus, on top of the statewide California sales tax rate of 7.25 percent sales tax, taxpayer businesses in Alameda County must charge an additional 3 percent sales tax. Those who conduct business in Alameda city must add an additional 0.50 percent. Businesses in the county would charge 10.25 percent, and those in the city would charge 10.75 percent.
Other counties and cities with more than one district tax include:
- Contra Costa and various cities within the county.
- Del Norte.
- Fresno County and various cities within the county.
- Humboldt County and various cities within the county.
- Imperial County and various cities within the county.
- Inyo County and Bishop city.
- Kern City and various districts within the city, including Bakersfield.
- Lake City and various districts within the city.
- Los Angeles County and various districts within the county.
- Madera County and various districts within the county.
- Marin County and various districts within the county. Marin city also has various districts with additional taxes.
- Mendocino County and various districts within the county.
- Merced County and various districts within the county.
- Monterey County and various districts within the county. Monterey city also has various districts with additional taxes.
- Napa County and various districts within the county.
- Nevada County and various districts within the county.
- Orange County and various districts within the county.
- Placer city and various districts within the city.
- Riverside County and various districts within the county.
- Sacramento County and various districts within the county.
- San Benito County and San Benito city, plus various districts within the city.
- San Bernardino County and various districts within the county. San Bernardino city also has several districts with additional taxes.
- San Diego County and various districts within the county. The city also has several districts with additional taxes.
- San Francisco County has several taxes at the county level.
- San Juaquin and various districts at the county and city levels.
- San Luis Obispo city and various districts in the city.
- San Mateo County and various districts in the county. San Mateo city also has various districts with additional taxes.
- Santa Barbara County and various districts in the county. Santa Barbara city also has taxes, plus districts with additional taxes.
Other counties and cities with additional taxes include Santa Clara, Santa Cruz, Siskiyou, Solano, Sonoma, Stanislaus, Tehama, Tulare, Ventura, Yolo, and Yuba.
Out-of-state retailers must pay sales and use tax
If your business is not in California, but you sell goods and services to businesses and residents of the state, you must charge the base state sales tax and any district taxes based on the business’s or resident’s address. However, you only pay the tax if the business transactions exceeded $500,000 in the previous year.
If the business exceeds $500,000, the buyer must pay sales and use tax and file sales tax returns based on the location of the business or resident.
Registering for California’s taxes
Businesses register for tax permits at the California Department of Tax and Fee Administration using the online portal. Using the online system, businesses can also:
- File a return.
- Make payments.
- Request relief.
A business can choose to register using English or Spanish.
If you sell cigarettes, beer, wine, alcohol, and certain other products, you must file a separate tax form. Follow the links at the bottom of the login form on the registration page.
California tax exemptions
Certain food products for human consumption – most groceries – are exempt from sales and use taxes — for example, ground coffee. However, if the business serves a hot cup of coffee, it must tax the coffee.
Additionally, all sales from a business to the United States government are tax exempt.
Prescription medications and some medical devices do not have sales tax. Additionally, items paid for with food stamps are not subject to the state sales tax rate. Medications must be prescribed, and a pharmacist must dispense the medications. Ambulatory aids, such as wheelchairs, are exempt, as are vehicle modifications, such as for hand controls.
Finally, certain sales are not taxed because the purchaser or the seller meets certain criteria as outlined in Publication 61, including nonprofit companies, religious, and educational organizations.
Calculating California’s sales and use tax rates
When calculating a business’s sale and use tax obligation for the sale or purchase of tangible personal property, add the district taxes to California’s base tax rate. Using our example of Alameda above, someone living in the city of Alameda would pay the
- Six separate county taxes of 0.50 percent each plus for a total of 3 percent county taxes;
- The city’s tax of 0.50 percent; plus
- The state’s tax rate of 7.25 percent.
The total would be 10.75 percent.
Filing and paying California’s sales and use taxes
To report taxes and remit payments, you will need:
- The business’s CDTFA account number.
- All of the sales, transactions, purchases, deductions, and other information the business is required to report for the specific filing period.
- The business’s payment information.
A business can pay in three different ways: Directly from the business bank account, via credit card, or via EFT payment.
Tax due dates vary depending on whether you file monthly, quarterly, or yearly. You can also prepay taxes.
If you file quarterly:
- The first quarter’s taxes (January through March) are due April 30.
- The second quarter’s taxes (April through June) are due July 31.
- The third quarter’s taxes (July through September) are due October 31.
- The fourth quarter’s taxes (October through December) are due January 31.
If you file monthly, the taxes are due on the last day of the following month. For example, March’s taxes are due on April 30. September’s taxes are due October 31.
If you file yearly, the taxes are due on or before January 31 of the next year. For example, you collected sales, use, and district taxes for January 2021 through December 2021. The tax returns and payments are due on January 31, 2022.
Qualified purchasers and consumer-use tax accounts must pay taxes due from purchases from January through December on April 15 of the following year. For example, if you made purchases and owe use tax for January 2021 through December 2021, the use tax is due on April 15, 2022.
A business should also keep track of purchases and sales that fall under the state’s tax exemptions rules in the event the business is ever audited. If you sell something tax-free, be sure the buyer has a sales tax exemption certificate.
California’s tax holiday for sales tax exemption
Many states have a tax holiday – usually during the summer so that parents can purchase back-to-school supplies and clothing tax-free. California does not have a tax holiday for purchasing school supplies and emergency equipment.
The base tax rate for California is 7.25 percent. Districts, including counties and cities, have additional rates.
Los Angeles County has a tax rate of 2.25 percent, plus Los Angeles suburbs have different tax rates. For example, if you live in Long Beach, you would pay an additional 1 percent. If you live in Commerce, you would add 0.75 percent for the two taxes in that city. The total tax for Los Angeles is 9.5 and for Commerce is 10.25.
Orange County has a district tax of 0.50 percent. The total tax if you live in the county is 7.25 state sales tax plus the 0.50 percent for a total of 7.75 percent. Various cities in Orange County also have tax rates. For example, Garden Grove has a tax of 1 percent in addition to the state and county taxes.
San Jose businesses pay state and county taxes of 9.125 percent plus 0.25 percent for the City of San Jose for a total of 9.375 percent.
Santa Ana businesses pay state and county taxes of 7.75 percent plus 1.50 percent for the city, for a total of 9.25 percent.
Stockton businesses pay state and county taxes of 7.75 plus three separate taxes for the city of Stockton, totaling 1.25 percent, for a total of 9 percent.
Pasadena businesses pay state and county taxes of 9.50 percent plus a city tax of 0.75 percent for a total of 10.25 percent.
Oxnard businesses pay state taxes of 7.25 percent, zero county taxes for Ventura, plus two Oxnard city taxes totaling 2 percent for a total of 9.25 percent.
Glendale businesses pay state and county taxes of 9.5 percent plus Glendale city taxes of 0.75 percent for a total of 10.5 percent.
Culver City businesses pay state and county taxes of 9.5 percent plus two taxes for Culver City that total .75 percent. The total these businesses pay is 10.25 percent.