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California Sales Tax Guide for Businesses

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If you’re an online seller based in California, or with customers in California, this guide will help you understand your sales tax responsibilities.

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After reading this, you’ll know:

  • Do you have sales tax nexus in California?
  • Do you have economic nexus in California?
  • Do you have sales tax nexus in California if you sell on Amazon FBA?
  • Is what you’re selling taxable in California?
  • Do your customers have to pay sales tax?
  • Collecting sales tax in California
  • How out-of-state sellers should collect sales tax in California
  • Paying California sales tax
  • Filing Sales Tax in California
  • California Sales Tax Resources

If you have any questions after reading through the California Sales Tax Guide for Businesses, *reach out to the TaxJar team so we can look at your specific situation and unique sales tax and tax automation needs.*

Do you have sales tax nexus in California?

“Sales tax nexus” means different things in different states. In California, every retailer engaged in business has sales tax nexus which includes but is not limited to having:

  1. A physical location – This includes an office, place of distribution, sale or sample room or place, warehouse or storage place, or other place of business.
  2. A person working for you – This includes a representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property.
  3. An affiliate – Also called “click through” nexus, this includes “a person or persons in this state, for a commission or other consideration, directly or indirectly refer potential purchasers of tangible personal property to the retailer, whether by an Internet-based link or an Internet Web site, or otherwise.” Nexus occurs when sales from affiliates exceed $10,000 in the preceding 12 months AND total in-state sales exceed $1 million in the preceding 12 months.
  4. Presence at a tradeshow – Making sales at a tradeshow may constitution nexus, but if the retailer had a physical presence at a convention or trade show for 15 or fewer days in any 12-month period and did not derive more than $100,000 of net income from these activities in the prior calendar year, nexus would not have been established. However, and it’s a big however, sellers are still required to collect use tax from buyers at trade shows.

While these are the elements of nexus that apply to most sellers, nexus can be established in California by other means, too. You should refer to California Sales and Use Tax law for comprehensive information for business owners.

Do you have economic nexus in California?

Effective April 26, 2019, California considers retailers who exceed $500,000 in taxable annual sales to have economic nexus. This means the state considers these sellers now obligated to collect sales tax from buyers in that state. You can read California’s economic nexus guides for sellers here and read more about economic nexus in every state here.

Do you have sales tax nexus in California if you sell on Amazon FBA?

Online retailers are increasingly using Fulfillment by Amazon to sell their products. According to California’s rules of nexus, a seller who stores items in a physical location in the state – including an Amazon Fulfillment Center – has sales tax nexus there and must collect sales tax from California buyers.

To determine whether or not you have items stored in an FBA warehouse in California, you can do one of two things:

  1. Login to Amazon Seller Central and pull your inventory report
  2. Try a 30-day free trial of TaxJar and we’ll show you the states where your items are shipping from with our Amazon badge feature

You may find that your inventory is stored in one or all of California’s Amazon fulfillment centers in this list:

Read here for more about Amazon FBA and sales tax nexus. Here’s a list of all Amazon Fulfillment Centers in the United States.

Is what you’re selling taxable in California?

Services in California are generally not taxable. So if you’re a freelance writer, you don’t have to worry about sales tax. But watch out – if the service you provide includes creating or manufacturing a physical item, you may have to deal with the sales tax on products.

So if you sell toys, then charge sales tax to your California customers. But if you’re a graphic designer, don’t charge sales tax to your California customers.

Tangible products are taxable in California, with a few exceptions. These exceptions include certain groceries, prescription medicine and medical devices. See California CDTFA publication 61 for a list of items that are exempt from California sales tax.

How to register for a sales tax permit in California

Some customers such as non-profits or resellers who present you a valid resale certificate do not have to pay sales tax.

If you have sales tax nexus in California and your products are taxable, your next step is to register for a sales tax permit.

If you plan to do business in California for less than 90 days (such as attending a craft fair or tradeshow), apply for a temporary sales tax permit.

Don’t skip this step! California considers it unlawful to collect sales tax in their name without a permit. Go here for more on how to register for a sales tax permit in California.

Using a California resale certificate

If you are a registered California seller, you can also buy items for resale (from participating merchants) without paying sales tax by presenting a California Resale Certificate. Find out more about using your California Resale Certificate here.

Collecting Sales Tax in California

So you’ve determined that you have sales tax nexus in California and what you’re selling is taxable. And you’re all set and registered for your California sales tax permit. The next step is to determine how much sales tax to collect.

How to collect sales tax in California

How much sales tax you collect in California is a little more complicated in most other states. While most states are either origin-based or destination-based sales tax states, California is a hybrid of both.

Here’s what you need to know:

How in-state sellers should collect sales tax in California

At TaxJar, we recommend collecting sales tax in California based on your buyer’s location, or, in other words, the item’s destination. However, California is technically a “hybrid-origin” state when it comes to sales tax collection. Let’s look at what that means.

Hybrid-Origin Sales Tax Collection

For sellers, this means that you will collect at least two sales tax rates in California – one for buyers in the “district” where your business is located and one for buyers outside the district where your business is located.

Not many of us realize that the sales tax rate is the sum of two rates: the California state sales tax rate (7.25% in 2018) and a district sales tax rate. “Districts” are cities, counties and towns. The rates for these districts range from 0.10% to 1.00% per district. More than one district tax may be in effect in a given location. California has four sales tax districts.

If you only have one location in California, then you’ll charge two sales tax rates. You’ll charge your district rate to buyers located in your district, and the California state rate (7.25% in 2018) to buyers outside your district.

If you have multiple locations in California, then your life gets a little more complicated. You may be required to collect sales tax at even more rates from buyers within California. For example, if you have locations in all four districts, then you must charge the district rate to all buyers in California.

Here is a chart of the most populated cities in California, along with total combined tax rate:

Here’s the state’s official list of Sales and Use Tax rates, also known as Publication 71. To quickly and easily look up a sales tax rate, check out TaxJar’s Sales Tax Calculator.

How out-of-state sellers should collect sales tax in California

If you are based outside of California but have sales tax nexus in California, it’s simplest and most accurate to charge sales tax based on the sales tax rate at your buyer’s destination.

What are the Amazon sales tax settings for California?

If you are an Amazon pro seller and use Amazon to collect sales tax, be sure you have your sales tax settings set up correctly. Find step-by-step instructions for setting up your Amazon sales tax settings here.

Amazon’s internal sales tax engine collects sales tax in California based on the sales tax rate at the buyer’s ship-to location. For this reason, we recommend that Amazon FBA sellers set their TaxJar accounts to “destination” sourcing for the most accurate California sales tax reporting.

Should you collect sales tax on shipping charges in California?

Read a full explanation of sales tax on shipping in California here.

Paying California Sales Tax

Once you’ve figured out how much sales tax to charge your customers, it’s time to report and file.

When are California Sales Tax Returns Due?

When you file and pay California sales tax depends on two things: your assigned filing frequency and your state’s due dates.

How often will you file sales tax returns in California?

States assign you a filing frequency when you register for your sales tax permit. In California, you will be required to file and remit sales tax either monthly (in special cases), quarterly, semiannually or annually (calendar annual or fiscal annual).

How often you are required to file sales tax in California follows this general rule:

California sales tax returns are always due the last day of the month following the reporting period. If the filing due date falls on a weekend or holiday, sales tax is generally due the next business day.

Important to Note: California requires some high-volume sellers to file on a quarterly basis but make monthly sales tax prepayments. If this applies to you, you will have monthly prepayments due to California by the 24th of the month following every month in which you do not have a sales tax filing and payment due. Read more about California monthly prepayments here, and see the California monthly prepayment due dates here.

2020 California Monthly Sales Tax Filing Due Dates

2020 California Quarterly Sales Tax Filing Due Dates

2020 California Semiannual Sales Tax Filing Due Dates

2020 California Annual Sales Tax Filing Due Dates

Click here for more info on California sales tax filing due dates.

How to File Sales Tax in California

When it comes time to file sales tax in California, you must do three things:

  1. Calculate how much sales tax you owe
  2. File a sales tax return
  3. Make a payment

How to calculate how much sales tax you owe in California

Calculating how much sales tax you should remit to the state of California is easy with TaxJar’s California sales tax report.

When you sign up for TaxJar, you’ll connect all your sales channels– such as Amazon, eBay, Shopify, Square, and more – and we’ll calculate exactly how much sales tax you collected. All the information you need to file your California sales tax return will be waiting for you in TaxJar. Get your step-by-step guide to filing your California sales tax return.

How to file a sales tax return in California

You have three options for filing your sales tax:

  1. File online – You can remit your sales tax payment through the California Department of Tax and Fee Administration’s online system. This step-by-step guide shows you how to file your California sales tax return the easy way.
  2. File by mail – You can use California’s short form sales and use tax return and file through the mail, though you must pay online if your estimated monthly tax liability is $10,000 or more.
  3. AutoFileLet TaxJar file your sales tax for you. We take care of the payments, too. You’ll never have to worry about spreadsheets, calculations, or filling out complex sales tax returns.

This video will walk you through filing your California sales tax return online using your TaxJar report:

Other facts you should know about California sales tax filing

There are a few more things you should know about sales tax in California:

Penalties:

  • Late Filing Penalty – 10% of sales tax owed (Source)
  • Late Payment Penalty – 10% of sales tax owed (Source)

If you both file late and pay late, your penalty will not exceed 10% of the amount of taxes due. Other penalties for fraud or serial offenses include higher fines and even criminal charges.

“Zero” Returns:

California requires that any seller with a sales tax permit file a sales tax return on your due date even if you don’t have any sales tax to report or pay. If you fail to file, California will continue to send you invoices and reminders, and if they still don’t hear from you, they will eventually close out your sales tax account.

California Sales Tax Resources

Yes, sales taxes are complicated. But now you’ve got the information you need to file accurately and on time every time. And when you’re ready to streamline your sales taxes so you can get back to growing your business, TaxJar is here to help.

For more about California sales tax, check out the California section of the TaxJar blog.

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