Sales tax generally applies to purchases made within the state’s borders, including merchandise such as motor vehicles. Payment of sales tax to the state is the responsibility of the business authorized to collect it. Use tax applies to items purchased outside the state of California, such as by mail order or online, where purchasers don’t pay sales tax. It also applies to the purchase of motor vehicles, mobile homes, watercraft, and aircraft from sellers without a California seller’s permit and when business owners withdraw taxable merchandise from their inventories for their personal use. Payment of use tax is usually the purchaser’s responsibility.
An out-of-state retailer may also have nexus if they work through California affiliates, vendors, or advertisers. Additionally, companies that make sales through internet sales or mail catalogs may have nexus. Companies not considered to be “engaged in business” are not required to collect, report, and pay California sales or use tax, but many register with the state’s Board of Equalization anyway to relieve their customers of the responsibility of paying the use tax.
Some tangible items are exempt from California sales or use tax, such as groceries and prescription medicines. Many intangible services, like writing or plumbing services, are not taxable. However, if the service product a salable product, that product may be taxed. [1] X Research source A complete list of exempt items is available in the state Board of Equalization’s Publication 61, Sales and Use Taxes, Exemptions and Exclusions.
As a seller, you may be able to choose whether you collect taxes using origin-based or destination-based calculations. If the site of a purchase falls in more than one taxing district, the rates of all districts are applied. [3] X Research source For example, a sale might be charged tax at a rate of 9. 5 percent, which is calculated from the 7. 5 percent state rate plus 1. 5 percent country rate and a 0. 5 percent district rate.
This may leave your customers in other districts liable for their own district sales taxes. [4] X Research source
The California Board of Equalization’s Publication 71: California City and County Sales and Use Tax Rates lists the rates and effective dates for California district taxes, as well as the combined rates. You can also search for the correct rate at https://maps. gis. ca. gov/boe/TaxRates/ Additional resources on California sales and use taxes and district taxes include the Board of Equalization’s Publication 44: Tax Tips for District Taxes and Publication 105: District Taxes and Delivered Sales.
For example, imagine that a retailer in San Jose ships a product to a customer in El Monte (a city within Los Angeles County). If they are using the destination-based system, they would charge the state tax rate, 7. 5 percent, plus a country rate for 1. 5 percent for Los Angeles County, plus an additional 0. 5 percent for the city of El Monte for a total of 9. 5 percent. Alternately, if they were using the origin-based system, they would simply use the state-wide rate of 7. 5 percent.
You can use an online tax calculator to assist in calculating California sales tax. One such calculator is Pitney Bowes’ Geotax calculator. Another calculator is available at http://www. projectedfinancialstatements. com/pages/salestax. asp. It allows calculating sales tax rates for California and nine other states that have special tax jurisdictions within their borders.
