California sales tax is among the most complex in the nation. It starts off at 7.25% at state level before varying local rates apply in cities and counties throughout California.
California is a hybrid state, meaning they collect sales taxes at both origin- and destination-based levels; therefore you will also need to consider district sales taxes when collecting sales tax.
Taxes
California businesses must collect sales tax on most tangible goods and services sold within its borders; some items, including certain groceries and prescription drugs, may be exempt. Tax also applies to restaurant meals and hot beverages purchased, but does not apply to services like cleaning or delivery.
California has a minimum tax rate of 7.25%; however, depending on district taxes it could increase. Local taxes collected through district assessments go towards public transportation programs as well.
If your business has a physical presence in California, registering with the California Department of Tax and Fee Administration and collecting and remitting sales and use tax on time is mandatory.
Rates
California has a minimum combined sales tax rate of 7.25%, including state, county and city rates. When selling to customers located within certain districts you may also need to charge district sales tax.
District taxes are a form of local sales tax levied by California cities, counties and towns on local sales transactions. While rates vary among districts, most typically fall between 0.10-10.000%.
These taxes are collected on top of state and local sales tax and sent directly back to the city, county or town that levied them as an additional revenue stream, often used to fund public transportation programs and cover some state costs such as police and fire protection services. Due to California being destination-based tax collection state laws dictate these fees be collected whenever goods enter its borders – although they are also collected when shipped directly from out-of-state purchases to California buyers.
Exemptions
California law taxed most tangible products and some services; however, not all services were subject to sales tax collection. You must charge and collect sales tax on services integral to the creation or sale of products you sell (such as advertising, marketing or office rental services) while services that don’t directly relate to physical products ( like advertising marketing or office rental) generally don’t fall under sales tax collection. Furthermore, certain buyers – including foreign and state governments, non-profit organizations with resale certificates or Direct Pay permits are exempt from paying sales tax collection requirements.
Some high-volume sellers must make regular use tax prepayments to the state in order to counteract any unfair advantages out-of-state retailers may gain by not collecting sales tax on purchases made by California residents. California has a minimum sales and use tax rate of 7.25%, of which 6 percent goes directly into state funds while another 1.25 goes towards county and city operational funds (some cities also impose district taxes).
Filing
If your business has established nexus in California (defined as crossing an economic threshold) then sales tax must be collected on all taxable products sold to customers in the state, and local district taxes collected if applicable.
Once every reporting period (typically monthly in some instances), quarterly, semiannually or annually (calendar annual or fiscal annual), you must file a sales tax return to California. A return is a document detailing sales related information submitted to the state; filing it by the last day of the following month should ensure compliance.
Many sellers opt for sales tax software programs to streamline filings and payments, saving both time and reducing errors from manual methods such as spreadsheets or forms. Some programs can even collect and file sales taxes in multiple states simultaneously – including California!