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California Sales Tax Guide for Businesses
Table of Contents
Automate Your California Filings
Find Your Economic Nexus
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?
“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 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:
Read here for more about Amazon FBA and sales tax nexus. Here’s a list of all Amazon Fulfillment Centers in the United States.
Do you have economic nexus in California?
Effective April 1, 2019, California considers retailers who make more than $100,000 in taxable annual sales or conduct more than 200 transactions annually to have economic nexus. This means the state considers these sellers are 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.
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:
Here’s the state’s official Sales and Use Tax rates PDF , 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.