California Sales Tax Guide for Businesses
- Sales Tax Rate
- Local Taxes
- California BOE
- Tax Line
This guide is for online sellers who want to know if they even have to bother with sales tax in California, and if so, how best to tackle the sales tax situation in the Golden State.
After reading this, you’ll know:
- Which customers do you collect sales tax from?
- How much sales tax do you collect?
- What do you do with all the sales tax you’ve collected?
- Way more than you probably ever wanted to know about California sales tax!
Do you have sales tax nexus in California?
Good news! You only have to begin thinking about California sales tax if you have sales tax nexus in California.
“Sales tax nexus” is just a fancy way of saying “significant presence” in a state.
You can click here to read exactly what the California Board of Equalization (California’s taxing authority) has to say about what constitutes sales tax nexus in California.
If legalese isn’t your thing, we’ve broken down the parts that refer to online sellers and sellers of tangible personal property (i.e. products) here.
What California has to say about sellers and sales tax nexus
Every retailer engaged in business in this state has sales tax nexus.
A retailer engaged in business is defined as any retailer that has substantial nexus with this state for purposes of the commerce clause of the United States Constitution or any retailer upon whom federal law permits this state to impose a use tax collection duty.
“Engaged in business” includes but is not limited to:
- 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.
- 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.
- An affiliate (i.e. “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.
- Presence at a tradeshow – Making sales at a tradeshow may constitution nexus, but if the retailer had a physical presence at a convention or tradeshow 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 was not established. However, sellers are still required to collect use tax from buyers at tradeshows.
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 I have sales tax nexus in California if I 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:
- Login to Amazon Seller Central and pull your inventory report
- Try a 30-day free trial of TaxJar and we’ll show you you the states from where your items are shipping 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:
Is what you’re selling even taxable?
Services in California are generally not taxable. So if you’re a freelance writer or a plumber, you’re in luck and you don’t have to worry about sales tax. But watch out – if the service you provide includes creating or manufacturing a product, you may have to deal with the sales tax on products.
Tangible products are taxable in California, with a few exceptions. These exceptions include certain groceries, prescription medicine and medical devices. See California BOE publication 61 for a list of items that are exempt from California sales tax.
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.
Does your customer have to pay sales tax?
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.
How to register for a sales tax permit in California
Sellers with sales tax nexus in California must apply for a California 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.
How to collect 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. The sales tax rate 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, but 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 destination. However, California is technically a “hybrid-origin” state when it comes to sales tax collection. Here, we will detail both methods of sales tax collection:
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 state sales tax rate (7.25% in 2018) and a district sales tax rate. “Districts” are government lingo for 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.
Destination-based Sales Tax Collection
In this method of sales tax collection, simply collect the full combined sales tax rate at your buyer’s ship to location. While you don’t technically have to collect the distric sales tax rate from buyers outside your district, this leaves your customers on the hook to report their district rate as “use tax.” Also, it’s just simpler to charge sales tax based on the district rate, and your customers are accustomed to paying the full, combined sales tax rate on purchases.
Here is a chart of the most populated cities in California, along with total combined tax rate:
|1||Los Angeles||3,971,883||Los Angeles||8.750%|
|2||San Diego||1,394,928||San Diego||7.750%|
|3||San Jose||1,026,908||Santa Clara||9.250%|
|4||San Francisco||864,816||San Francisco||8.500%|
|7||Long Beach||474,140||Los Angeles||9.750%|
|14||Chula Vista||265,757||San Diego||8.250%|
|17||San Bernardino||216,108||San Bernardino||8.000%|
Top 20 Most Populous Cities in California and their Sales Tax Rates (June 2017)
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.
|If you are a…||State tax||County tax||City tax||District tax||Custom rate||Is shipping taxable?||Is gift wrapping taxable?|
|Seller living in California||X||X||X||X||N/A||No||Yes|
|Seller living outside of California||X||X||X||X||N/A||No||Yes|
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?
Once you’ve figured out how much to sales tax to charge to 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 most states, how often you file sales tax is based on the amount of sales tax you collect from buyers in the state.
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:
|Average Monthly Tax Liability||Filing Frequency|
|With special permission||Monthly|
|$1,200 and up||Quarterly Prepaid (prepayments made monthly)|
|$101.00 to $1,200.00||Quarterly|
|$0 to $100.00||Annual/Semiannual/Fiscal Annual (at state’s discretion)|
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.
2017 California Monthly Sales Tax Filing Due Dates
|Taxable Period||Due Date|
|January||February 28, 2017|
|February||March 31, 2017|
|*March||May 1, 2017*|
|April||May 31, 2017|
|May||June 30, 2017|
|June||July 31, 2017|
|July||August 31, 2017|
|*August||October 2, 2017*|
|September||October 31, 2017|
|October||November 30, 2017|
|*November||January 2, 2018*|
|December||January 31, 2018|
*indicates a due date pushed back due to a weekend or holiday
2017 California Quarterly Sales Tax Filing Due Dates
|Taxable Period||Due Date|
|*Q1 (Jan-March)||May 1, 2017*|
|Q2 (April-June)||July 31, 2017|
|Q3 (July-Sept)||October 31, 2017|
|Q4 (Oct-Dec)||January 31, 2018|
*indicates a due date pushed back due to a weekend or holiday
2017 California Semiannual Sales Tax Filing Due Dates
|Taxable Period||Due Date|
|Semiannual 1 (Jan-June)||July 31, 2017|
|Semiannual 2 (July-Dec)||January 31, 2018|
2017 California Annual Sales Tax Filing Due Dates
|Taxable Period||Due Date|
|Fiscal Year (July 2016 - June 2017)||July 31, 2017|
|Calendar Year 2017||January 31, 2018|
Click here for more info on California sales tax filing due dates in 2017.
How to file sales tax in California
When it comes time to file sales tax in California you must do three things:
- Calculate how much sales tax you owe
- File a sales tax return
- 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.
All you do is connect the channels through which you sell – including 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. All you have to do is login!
Click here for 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:
- File online – File online at the California Board of Equalization. You can remit your payment through their online system. This step-by-step guide shows you how to file your California sales tax return the easy way.
- 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.
- AutoFile – Let 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 manually filing your California sales tax return 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:
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 penalties and even criminal charges.
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 will eventually close out your sales tax account.
And that’s it. You’ve mastered California sales tax filing! Now that sales tax is out of the way, you can get back to what you do best – running your business.
California Sales Tax Resources
For more about California sales tax, check out the California section of the TaxJar blog.