Running an ecommerce business in California or anywhere in the US? This guide to the California sales tax will help you understand their tax system and avoid paying penalties due to incorrect filings. Let’s get started.
Sales tax at a glance
California sales tax rates & calculations in 2024
The California sales tax rate in 2024 is 7.25%. This includes a base rate of 6% plus a mandatory local rate of 1.25%. Depending on the local sales tax jurisdiction, the total tax rate can be as high as 10.25%.
List of local sales tax rates in California
You can look up the full table of sales tax rates in each city and county in California. Here’s a snippet of the same.
Recent tax rate changes in California
On July 1, California will adjust the tax rate on other tobacco products (OTP), including vapor products, from 61.74% to 56.32% of the wholesale cost. This change is required to bring the OTP tax rate in line with the effective tax rate on cigarettes. Since April 2017, California's cigarette tax has been a fixed $2.87 per pack of 20. But as average cigarette prices have increased, the effective tax rate has declined, helping maintain the prices.
FAQs
How do you calculate California sales tax?
To calculate California sales tax, you can use the formula:
Sales tax = (base rate + local rate) * purchase price.
For example—if the base rate is 6%, the local rate is 1.25%, and the purchase price is $100, the sales tax would be $7.25.
What are the penalties for not paying California sales tax?
Businesses that incorrectly file or pay their California sales tax can attract penalties of up to 10% of their unpaid tax amount.
What’s the difference between destination-based and origin-based sales tax states?
The critical difference lies in how the sales tax rate is determined for transactions.
- Destination-based sales tax is based on where the purchased product or service will be consumed or delivered.
- Origin-based sales tax is based on where the seller is located. This is a more convenient form of tax collection. However, there are very few states that choose origin-based sales tax.
Is the California sales tax destination-based or origin-based?
California has a modified origin-based sales tax system.
State, county, and city taxes are based on where the sale originates from. However, district taxes are based on where the buyer is located.
Is California a streamlined sales tax state?
California is not a Streamlined Sales Tax State.
The Streamlined Sales Tax Project (SSTP) aims to simplify sales tax collection across states that adopt its Streamlined Sales and Use Tax Agreement (SSUTA), and California still needs to join the SSTP or implement the SSUTA.
Sales tax nexus and registration
The sales tax nexus is a crucial link between a business and a state, mandating the business to collect and pay sales tax on all the transactions that take place within that state.
A company may reach nexus in California and will require a seller’s permit by
- Maintaining a physical presence such as an office, distribution center, sales room, warehouse, or another place of business.
- Having representatives, agents, or contractors working in California to make sales, take orders, assemble or install products, train customers, make deliveries, or develop the market.
- Receiving rental income from leasing tangible property located in California like machinery, equipment, or furniture.
- Owning or leasing real estate or other property in California such as equipment, furniture, or computer servers.
- Having total sales of tangible personal property delivered in California exceeding $500,000 during the previous or current calendar year.
Once you have established a sales tax nexus in California, you are required to register for a sales tax permit and collect and remit sales tax on all of your sales in the state.
Sales tax nexus table in California
How to register for sales tax in California?
To register for sales tax in California, you can visit the California Department of Tax and Fee Administration (CDTFA) website. You will need to provide the following information:
- Your business name and address
- Your taxpayer identification number (TIN)
- The type of business you are registering for
- The products or services you sell
- Your estimated annual sales in California
Once you have registered for a sales tax permit, you will be required to collect and remit sales tax on all of your sales in California. You can do this by using a sales tax software program or by manually calculating and remitting the sales tax.
Registration requirements for online sellers in California
If you are an online seller, you may be required to register for sales tax in California if you meet the following criteria:
- You have more than $500,000 in sales of tangible personal property in California in the current or prior calendar year.
- You have a physical presence in California, such as a store, warehouse, or office.
- You actively target California customers, such as by advertising in California media or having a website that is accessible to California customers.
- The marketplace you use to sell your products has a physical presence
Cost of registration for a California sales tax license
There is no cost to register for a sales tax permit in California. However, you may be required to pay a security deposit. This is done to ensure taxes are paid in case of business closure. The amount of security will be determined at the time you apply.
Agencies to register within California
- California Department of Tax and Fee Administration (CDTFA) is responsible for registering businesses for a seller's permit if there is a need for collecting sales tax. You can register for a seller's permit through the CDTFA website or by mail.
- California Secretary of State (SOS) handles registering businesses for a business license. You can register for a business license through the SOS website or by mail.
- Local government agencies like cities and counties may also require registering for a local business license. Check requirements with your local city hall or county offices.
FAQs
Do I need a California seller's permit if I’m only a wholesaler?
Yes, you need a California seller's permit if you are only a wholesaler. Wholesalers are required to collect sales tax on all sales of tangible personal property that are made to retailers or consumers in California.
Do I need a California seller's permit if I only sell temporarily in the state?
Yes, you need a California seller's permit if you only sell temporarily in the state. If you sell tangible personal property in California for more than 90 days in a calendar year, you are required to register for a seller's permit and collect sales tax on all of your sales.
What's taxable and what's exempt
Here’s a list of items that are taxable in California.
- Retail sales of tangible personal property, such as clothing, furniture, and appliances.
- Sales of certain services, such as restaurant meals, car repairs, and landscaping.
- Sales of digital products, such as software, music, and movies.
Exemptions from sales tax in California
The following are some exemptions from sales tax in California:
- Certain food products for human consumption including many groceries
- Sales to the US. Government
- Prescription medicine and certain medical devices
- Items paid for with food stamps
- Liquefied Petroleum Gas
You can find some partial exemptions on diesel, farm equipment, and others.
FAQs
Are groceries taxable in California?
Groceries are exempt from sales tax in California. This includes both unprepared and prepared foods. However, there are a few exceptions to this rule. For example, candy, soft drinks, and prepared foods that are served in restaurants are taxable.
Is clothing taxable in California?
Clothing is taxable in California, with the exception of certain items, such as underwear, socks, and footwear. This includes both new and used clothing.
Are digital products taxable in California?
Digital products, such as software, music, and movies, are taxable in California. This includes both products that are downloaded and products that are streamed.
Is software-as-a-service (SaaS) taxable in California?
Software-as-a-service (SaaS) is taxable in California. SaaS is a type of software that is delivered over the internet and is accessed on a subscription basis.
Are services taxable in California?
Many services are taxable in California. This includes services such as restaurant meals, haircuts, car repairs, dry cleaning, hotel stays, rental cars, and tickets to sporting events and concerts. However, there are some services that are exempt from sales tax, such as medical services and financial services.
Excise & discretionary taxes
Excise taxes are taxes levied on specific goods or services. Discretionary taxes are taxes that are imposed by local governments, and the rates can vary from city to city.
Excise taxes in California (alcohol, tobacco, gasoline, fuel, marijuana)
- Alcohol: The alcohol excise tax applies to all alcoholic beverages like beer, wine, and spirits. The tax rate is based on the alcohol content.
- Tobacco: Tobacco products include cigarettes, cigars, and chewing tobacco. The tax rate is based on the weight of the tobacco product.
- Gasoline: All gasoline sold in the state is charged an excise tax of 18 cents per gallon.
- Diesel Fuel: Diesel fuel attracts an excise tax of 44 cents per gallon.
- Marijuana: Marijuana sold in the state. The tax rate is 15% of the retail price.
Food and beverage tax in California
California does not have a general sales tax on food and beverages. However, there are excise taxes on some specific items:
- Soda and other sweetened beverages are subject to an excise tax of 1 cent per ounce.
- Alcoholic beverages are subject to alcohol excise taxes.
- Candy and chewing gum are subject to an excise tax of 2 cents per ounce.
Remote sellers in California
Remote sellers, or sellers who do not have a physical presence in California, are required to collect sales tax on sales made to California residents if their sales exceed a certain threshold. The threshold is $500,000 in annual sales for most remote sellers.
Prepaid sales tax rates for fuel products in California
California require that all fuel products sold in the state prepay the sales tax. The prepaid sales tax rate for fuel products ranges from 8 cents per gallon for motor vehicle fuel (gasoline)
Discretionary taxes in California (local sales taxes)
In addition to the state excise taxes and use taxes, local governments in California can also impose discretionary taxes. These taxes are typically imposed on sales of goods and services within the local jurisdiction.
The rates of discretionary taxes can vary from city to city. For example, the city of San Francisco imposes an 8.625% sales tax on all retail sales, while the city of Los Angeles imposes a 9.5% sales tax.
Collecting sales tax in California
Let’s look at the steps to collect sales tax in California now.
How to collect sales tax in California if you are not based in California (Out-of-State)
Even if you do not have a physical presence in the state, you must register with CDTFA if you’re considered "engaged in business" in California. You can voluntarily register to collect and pay use tax for your California customers.
There are 5 common ways to be considered as “engaged in business”:
- Having a physical location in California like an office, warehouse, etc.
- Having representatives, agents, or contractors working in California.
- Receiving rental payments on property located in California.
- Owning or leasing real or personal property in California.
- Having over $500,000 in sales delivered to California.
There are specific rules for convention shows, voluntary disclosure, prepaid mobile services, California Tire Fee, and more.
You can register for a seller’s permit online using CDTFA’s online registration services. Once you obtain the seller’s permit in California, you are free to do business in the state and begin collecting sales tax even if you’re not physically based in California.
Should you collect sales tax on shipping charges in California?
The California Department of Tax and Fee Administration (CDTFA) provides specific guidelines on applying sales tax to delivery-related charges.
For delivery charges to be non-taxable, the shipment must go directly to the purchaser via common carrier, contract carrier, or US Mail. The invoice should clearly list the delivery, shipping, freight, or postage as a separate charge that does not exceed the actual delivery cost to the customer. However, if records are not maintained showing the actual delivery cost, the charge becomes taxable.
Delivery charges are partially taxable if the conditions above are met, except if the charge to the customer is higher than the actual shipping cost. They are also partially taxable if there is a combined "shipping and handling" or "postage and handling" charge.
Delivery charges are fully taxable if records of actual delivery costs are not kept if the seller uses their own vehicles for delivery if there are separate fuel surcharges or "handling" fees if the charge is built into the item's price, if it represents shipping costs to the seller's place of business, or if the sales agreement specifies delivery is included in the overall price.
Filing & paying sales taxes
Sales taxes are collected by businesses on the sale of goods and services. Businesses then remit those taxes to the state government. The frequency with which businesses need to file and pay sales taxes varies by state.
Register for sales taxes in California
Businesses in California must register with the California Department of Tax and Fee Administration (CDTFA) before they can start collecting sales tax.
Once registered, businesses will be assigned a filing frequency and due dates. Businesses can file their sales tax returns online, by mail, or by fax. Payments can be made by check, or money order, credit card, or electronic funds transfer.
Sales tax return filing schedule and due dates in California
The CDTFA assigns a filing frequency to businesses based on their anticipated taxable sales. This schedule is either monthly, quarterly, or annually.
The following due dates apply to California sales tax returns.
The due date is noted for each period for monthly, quarterly, and annual reporters. If a due date falls on a Saturday, Sunday, or legal holiday, then the return is due the following business day.
Monthly: Due the last day of the month following the reporting period month.
Quarterly: April 30th, July 31st, October 31st, and January 31st for the prior quarter.
Annual:
- For Sales Tax Accounts: Due January 31st for the prior year.
- For Qualified Purchasers and Consumer Use Tax Accounts: April 15th.
- Prepayment accounts file on the 24th of the first 2 months of each quarter.
Filing penalties in California
Businesses that fail to file their sales tax returns on time may be subject to penalties. The penalties are based on the amount of tax due and the number of days late.
For late filings or incorrect tax filings, the state charges a 10% penalty on the amount of tax owed.
When are returns due in California?
The due date for filing returns in California is the last day of the month following the period end date.
For instance, if you file quarterly and the filing period ends on March 30, your return filing due date will be April 31.
Similarly, for yearly billing where the filing period ends on December 31s, you can file your taxes by January 31.
FAQs
What are the California sales tax due dates?
The due dates for filing sales tax returns in California vary depending on the filing frequency. For quarterly filers, the due dates are:
- January 31st
- April 30th
- July 31st
- October 31st
I didn’t collect any California sales tax during this period. Do I still need to file a return?
Yes, you still need to file a sales tax return even if you didn't collect any sales tax. This is because you may be eligible for a refund.
Can I get an extension on filing my California sales tax return?
Yes, you can request an extension to file your California sales tax return. However, you must submit a request for an extension no later than one month after the due date of your return or prepayment form and payment.
Can I amend a California sales tax return?
Yes, you can file an amended return in California. You need to pay any additional tax that may have been missed along with the interest or penalties that the state requires you to pay.
What is the penalty for filing and/or paying California sales tax late?
California has a 10% penalty for late filing or incorrect filings. An additional penalty of 10% may apply if you do not file by the due date. However, the total penalty will not exceed 10% of your tax amount during the period.
Audit & appeals process
The audit & appeals process is a series of steps that a business must go through if they are audited by the California Department of Tax and Fee Administration (CDTFA). The process begins with the auditor contacting the business to schedule an audit.
The auditor will then review the business's records and tax returns to determine if any sales tax was not paid. If the auditor finds any discrepancies, they will issue a report with their findings.
The business then has the opportunity to appeal the findings to the CDTFA. If the appeal is denied, the business can then appeal to the California Superior Court.
California sales tax audit process
The California sales tax audit process is as follows:
- MAP allows eligible businesses to conduct a self-audit under CDTFA guidance, with benefits like reduced interest rates.
- Businesses with straightforward tax issues may participate by completing a specific agreement.
- Businesses review sales and purchase records for correct tax calculation and reporting. Special considerations apply to complex transactions.
- The auditor verifies the work, explains the results, and completes the audit.
- Special audits vary by program, and alternative verification may be used for specific transactions.
- The process concludes with a review by the auditor, and potential eligibility for the Managed Audit Program if criteria are met.
What to expect during the audit?
During a California sales tax audit under the Managed Audit Program (MAP), you can expect the following:
- Under the guidance of a CDTFA auditor, you will review sales and purchase records to ensure correct tax calculation and reporting.
- You may need to verify transactions by sending letters to vendors or customers using specific forms and sample letters provided by the auditor.
- You will perform tasks such as reviewing tax returns, reports, and schedules. The auditor will provide detailed instructions.
- The auditor will review your completed work to determine whether additional tax is owed, a refund is due, or the returns were correctly filed.
- An exit conference will be held where the auditor will explain the proposed credits, refunds, or additional tax resulting from the audit.
- A Report of the Field Audit will be prepared, summarizing the findings. If disagreements arise, further review and discussion steps are involved.
- Provisions exist for appealing audit results, and refunds may be subject to review and approval.
After the audit – Appealing the results
Contesting audit findings with the auditor in the California Department of Tax and Fee Administration's (CDTFA) Managed Audit Program involves:
- Notice of Final Audit Results: The auditor prepares a summary of findings. If you disagree, further review and discussion are involved.
- Managed Audit Program Participation: If qualified, you conduct many audit tasks with guidance from the auditor.
- Appealing the Results: Participation in a managed audit doesn't change your right to appeal. You can consult with the auditor for more information on the appeals process.
- Finishing Up the Audit: After completing your work, the auditor reviews your documents and arranges an exit conference to explain the results.
- Verifying Information in Your Records: You review your invoices and follow procedures as explained by the auditor.
- Voluntary Participation: Participation is voluntary, with no adverse consequences for choosing a usual audit.
- Assembling and Reviewing Records: The auditor indicates which records to review, and you fill out worksheets to determine the correct tax amount.
The process is collaborative and transparent helping each of the involved parties know and keep track of progress end-to-end.
Sales tax registration
Registering for sales tax in California is a simple online process.
- Simply visit the CDTFA registration page
- Click on “Get started” under the registrations tab
- Scroll down on the login page to find the registration links
- Click on “Register for a permit, license, or account”
- Select “I am the owner of the business” and proceed to next
- Check if you have received the ownership chain access and then proceed to the final steps
- Your business activity, type, and products/services sold
- Taxpayer information like jurisdiction, state, business address, and contact info
- People involved in the business, along with their ID numbers (SSN, FEIN, etc.)
- Online and physical presence of the business. If you make online sales, provide ecommerce site and marketplace details.
- NAICS code for your industry
- Use tax and sales volume, including total/taxable sales and date sales began
- Provide supplier information and details of the person completing the form.
- Review all details entered and submit the registration form.
- There are no fees for registering for the seller permit.
More Information & Contacts
For sales tax filing and appeals in California, you would be required to contact:
- California Department of Tax and Fee Administration (CDTFA)
- Phone number: 1-800-400-7115
- Website: https://www.cdtfa.ca.gov/
There you have it—an in-depth guide on NY’s sales tax for ecommerce companies. Also, in case you need someone to deal with the sales tax fiasco, Numeral can lend a hand. We have done this for the likes of immi and Amberjack and would be delighted to help you folks as well.
Sales tax at a glance
California sales tax rates & calculations in 2024
The California sales tax rate in 2024 is 7.25%. This includes a base rate of 6% plus a mandatory local rate of 1.25%. Depending on the local sales tax jurisdiction, the total tax rate can be as high as 10.25%.
List of local sales tax rates in California
You can look up the full table of sales tax rates in each city and county in California. Here’s a snippet of the same.
Recent tax rate changes in California
On July 1, California will adjust the tax rate on other tobacco products (OTP), including vapor products, from 61.74% to 56.32% of the wholesale cost. This change is required to bring the OTP tax rate in line with the effective tax rate on cigarettes. Since April 2017, California's cigarette tax has been a fixed $2.87 per pack of 20. But as average cigarette prices have increased, the effective tax rate has declined, helping maintain the prices.
FAQs
How do you calculate California sales tax?
To calculate California sales tax, you can use the formula:
Sales tax = (base rate + local rate) * purchase price.
For example—if the base rate is 6%, the local rate is 1.25%, and the purchase price is $100, the sales tax would be $7.25.
What are the penalties for not paying California sales tax?
Businesses that incorrectly file or pay their California sales tax can attract penalties of up to 10% of their unpaid tax amount.
What’s the difference between destination-based and origin-based sales tax states?
The critical difference lies in how the sales tax rate is determined for transactions.
- Destination-based sales tax is based on where the purchased product or service will be consumed or delivered.
- Origin-based sales tax is based on where the seller is located. This is a more convenient form of tax collection. However, there are very few states that choose origin-based sales tax.
Is the California sales tax destination-based or origin-based?
California has a modified origin-based sales tax system.
State, county, and city taxes are based on where the sale originates from. However, district taxes are based on where the buyer is located.
Is California a streamlined sales tax state?
California is not a Streamlined Sales Tax State.
The Streamlined Sales Tax Project (SSTP) aims to simplify sales tax collection across states that adopt its Streamlined Sales and Use Tax Agreement (SSUTA), and California still needs to join the SSTP or implement the SSUTA.
Sales tax nexus and registration
The sales tax nexus is a crucial link between a business and a state, mandating the business to collect and pay sales tax on all the transactions that take place within that state.
A company may reach nexus in California and will require a seller’s permit by
- Maintaining a physical presence such as an office, distribution center, sales room, warehouse, or another place of business.
- Having representatives, agents, or contractors working in California to make sales, take orders, assemble or install products, train customers, make deliveries, or develop the market.
- Receiving rental income from leasing tangible property located in California like machinery, equipment, or furniture.
- Owning or leasing real estate or other property in California such as equipment, furniture, or computer servers.
- Having total sales of tangible personal property delivered in California exceeding $500,000 during the previous or current calendar year.
Once you have established a sales tax nexus in California, you are required to register for a sales tax permit and collect and remit sales tax on all of your sales in the state.
Sales tax nexus table in California
How to register for sales tax in California?
To register for sales tax in California, you can visit the California Department of Tax and Fee Administration (CDTFA) website. You will need to provide the following information:
- Your business name and address
- Your taxpayer identification number (TIN)
- The type of business you are registering for
- The products or services you sell
- Your estimated annual sales in California
Once you have registered for a sales tax permit, you will be required to collect and remit sales tax on all of your sales in California. You can do this by using a sales tax software program or by manually calculating and remitting the sales tax.
Registration requirements for online sellers in California
If you are an online seller, you may be required to register for sales tax in California if you meet the following criteria:
- You have more than $500,000 in sales of tangible personal property in California in the current or prior calendar year.
- You have a physical presence in California, such as a store, warehouse, or office.
- You actively target California customers, such as by advertising in California media or having a website that is accessible to California customers.
- The marketplace you use to sell your products has a physical presence
Cost of registration for a California sales tax license
There is no cost to register for a sales tax permit in California. However, you may be required to pay a security deposit. This is done to ensure taxes are paid in case of business closure. The amount of security will be determined at the time you apply.
Agencies to register within California
- California Department of Tax and Fee Administration (CDTFA) is responsible for registering businesses for a seller's permit if there is a need for collecting sales tax. You can register for a seller's permit through the CDTFA website or by mail.
- California Secretary of State (SOS) handles registering businesses for a business license. You can register for a business license through the SOS website or by mail.
- Local government agencies like cities and counties may also require registering for a local business license. Check requirements with your local city hall or county offices.
FAQs
Do I need a California seller's permit if I’m only a wholesaler?
Yes, you need a California seller's permit if you are only a wholesaler. Wholesalers are required to collect sales tax on all sales of tangible personal property that are made to retailers or consumers in California.
Do I need a California seller's permit if I only sell temporarily in the state?
Yes, you need a California seller's permit if you only sell temporarily in the state. If you sell tangible personal property in California for more than 90 days in a calendar year, you are required to register for a seller's permit and collect sales tax on all of your sales.
What's taxable and what's exempt
Here’s a list of items that are taxable in California.
- Retail sales of tangible personal property, such as clothing, furniture, and appliances.
- Sales of certain services, such as restaurant meals, car repairs, and landscaping.
- Sales of digital products, such as software, music, and movies.
Exemptions from sales tax in California
The following are some exemptions from sales tax in California:
- Certain food products for human consumption including many groceries
- Sales to the US. Government
- Prescription medicine and certain medical devices
- Items paid for with food stamps
- Liquefied Petroleum Gas
You can find some partial exemptions on diesel, farm equipment, and others.
FAQs
Are groceries taxable in California?
Groceries are exempt from sales tax in California. This includes both unprepared and prepared foods. However, there are a few exceptions to this rule. For example, candy, soft drinks, and prepared foods that are served in restaurants are taxable.
Is clothing taxable in California?
Clothing is taxable in California, with the exception of certain items, such as underwear, socks, and footwear. This includes both new and used clothing.
Are digital products taxable in California?
Digital products, such as software, music, and movies, are taxable in California. This includes both products that are downloaded and products that are streamed.
Is software-as-a-service (SaaS) taxable in California?
Software-as-a-service (SaaS) is taxable in California. SaaS is a type of software that is delivered over the internet and is accessed on a subscription basis.
Are services taxable in California?
Many services are taxable in California. This includes services such as restaurant meals, haircuts, car repairs, dry cleaning, hotel stays, rental cars, and tickets to sporting events and concerts. However, there are some services that are exempt from sales tax, such as medical services and financial services.
Excise & discretionary taxes
Excise taxes are taxes levied on specific goods or services. Discretionary taxes are taxes that are imposed by local governments, and the rates can vary from city to city.
Excise taxes in California (alcohol, tobacco, gasoline, fuel, marijuana)
- Alcohol: The alcohol excise tax applies to all alcoholic beverages like beer, wine, and spirits. The tax rate is based on the alcohol content.
- Tobacco: Tobacco products include cigarettes, cigars, and chewing tobacco. The tax rate is based on the weight of the tobacco product.
- Gasoline: All gasoline sold in the state is charged an excise tax of 18 cents per gallon.
- Diesel Fuel: Diesel fuel attracts an excise tax of 44 cents per gallon.
- Marijuana: Marijuana sold in the state. The tax rate is 15% of the retail price.
Food and beverage tax in California
California does not have a general sales tax on food and beverages. However, there are excise taxes on some specific items:
- Soda and other sweetened beverages are subject to an excise tax of 1 cent per ounce.
- Alcoholic beverages are subject to alcohol excise taxes.
- Candy and chewing gum are subject to an excise tax of 2 cents per ounce.
Remote sellers in California
Remote sellers, or sellers who do not have a physical presence in California, are required to collect sales tax on sales made to California residents if their sales exceed a certain threshold. The threshold is $500,000 in annual sales for most remote sellers.
Prepaid sales tax rates for fuel products in California
California require that all fuel products sold in the state prepay the sales tax. The prepaid sales tax rate for fuel products ranges from 8 cents per gallon for motor vehicle fuel (gasoline)
Discretionary taxes in California (local sales taxes)
In addition to the state excise taxes and use taxes, local governments in California can also impose discretionary taxes. These taxes are typically imposed on sales of goods and services within the local jurisdiction.
The rates of discretionary taxes can vary from city to city. For example, the city of San Francisco imposes an 8.625% sales tax on all retail sales, while the city of Los Angeles imposes a 9.5% sales tax.
Collecting sales tax in California
Let’s look at the steps to collect sales tax in California now.
How to collect sales tax in California if you are not based in California (Out-of-State)
Even if you do not have a physical presence in the state, you must register with CDTFA if you’re considered "engaged in business" in California. You can voluntarily register to collect and pay use tax for your California customers.
There are 5 common ways to be considered as “engaged in business”:
- Having a physical location in California like an office, warehouse, etc.
- Having representatives, agents, or contractors working in California.
- Receiving rental payments on property located in California.
- Owning or leasing real or personal property in California.
- Having over $500,000 in sales delivered to California.
There are specific rules for convention shows, voluntary disclosure, prepaid mobile services, California Tire Fee, and more.
You can register for a seller’s permit online using CDTFA’s online registration services. Once you obtain the seller’s permit in California, you are free to do business in the state and begin collecting sales tax even if you’re not physically based in California.
Should you collect sales tax on shipping charges in California?
The California Department of Tax and Fee Administration (CDTFA) provides specific guidelines on applying sales tax to delivery-related charges.
For delivery charges to be non-taxable, the shipment must go directly to the purchaser via common carrier, contract carrier, or US Mail. The invoice should clearly list the delivery, shipping, freight, or postage as a separate charge that does not exceed the actual delivery cost to the customer. However, if records are not maintained showing the actual delivery cost, the charge becomes taxable.
Delivery charges are partially taxable if the conditions above are met, except if the charge to the customer is higher than the actual shipping cost. They are also partially taxable if there is a combined "shipping and handling" or "postage and handling" charge.
Delivery charges are fully taxable if records of actual delivery costs are not kept if the seller uses their own vehicles for delivery if there are separate fuel surcharges or "handling" fees if the charge is built into the item's price, if it represents shipping costs to the seller's place of business, or if the sales agreement specifies delivery is included in the overall price.
Filing & paying sales taxes
Sales taxes are collected by businesses on the sale of goods and services. Businesses then remit those taxes to the state government. The frequency with which businesses need to file and pay sales taxes varies by state.
Register for sales taxes in California
Businesses in California must register with the California Department of Tax and Fee Administration (CDTFA) before they can start collecting sales tax.
Once registered, businesses will be assigned a filing frequency and due dates. Businesses can file their sales tax returns online, by mail, or by fax. Payments can be made by check, or money order, credit card, or electronic funds transfer.
Sales tax return filing schedule and due dates in California
The CDTFA assigns a filing frequency to businesses based on their anticipated taxable sales. This schedule is either monthly, quarterly, or annually.
The following due dates apply to California sales tax returns.
The due date is noted for each period for monthly, quarterly, and annual reporters. If a due date falls on a Saturday, Sunday, or legal holiday, then the return is due the following business day.
Monthly: Due the last day of the month following the reporting period month.
Quarterly: April 30th, July 31st, October 31st, and January 31st for the prior quarter.
Annual:
- For Sales Tax Accounts: Due January 31st for the prior year.
- For Qualified Purchasers and Consumer Use Tax Accounts: April 15th.
- Prepayment accounts file on the 24th of the first 2 months of each quarter.
Filing penalties in California
Businesses that fail to file their sales tax returns on time may be subject to penalties. The penalties are based on the amount of tax due and the number of days late.
For late filings or incorrect tax filings, the state charges a 10% penalty on the amount of tax owed.
When are returns due in California?
The due date for filing returns in California is the last day of the month following the period end date.
For instance, if you file quarterly and the filing period ends on March 30, your return filing due date will be April 31.
Similarly, for yearly billing where the filing period ends on December 31s, you can file your taxes by January 31.
FAQs
What are the California sales tax due dates?
The due dates for filing sales tax returns in California vary depending on the filing frequency. For quarterly filers, the due dates are:
- January 31st
- April 30th
- July 31st
- October 31st
I didn’t collect any California sales tax during this period. Do I still need to file a return?
Yes, you still need to file a sales tax return even if you didn't collect any sales tax. This is because you may be eligible for a refund.
Can I get an extension on filing my California sales tax return?
Yes, you can request an extension to file your California sales tax return. However, you must submit a request for an extension no later than one month after the due date of your return or prepayment form and payment.
Can I amend a California sales tax return?
Yes, you can file an amended return in California. You need to pay any additional tax that may have been missed along with the interest or penalties that the state requires you to pay.
What is the penalty for filing and/or paying California sales tax late?
California has a 10% penalty for late filing or incorrect filings. An additional penalty of 10% may apply if you do not file by the due date. However, the total penalty will not exceed 10% of your tax amount during the period.
Audit & appeals process
The audit & appeals process is a series of steps that a business must go through if they are audited by the California Department of Tax and Fee Administration (CDTFA). The process begins with the auditor contacting the business to schedule an audit.
The auditor will then review the business's records and tax returns to determine if any sales tax was not paid. If the auditor finds any discrepancies, they will issue a report with their findings.
The business then has the opportunity to appeal the findings to the CDTFA. If the appeal is denied, the business can then appeal to the California Superior Court.
California sales tax audit process
The California sales tax audit process is as follows:
- MAP allows eligible businesses to conduct a self-audit under CDTFA guidance, with benefits like reduced interest rates.
- Businesses with straightforward tax issues may participate by completing a specific agreement.
- Businesses review sales and purchase records for correct tax calculation and reporting. Special considerations apply to complex transactions.
- The auditor verifies the work, explains the results, and completes the audit.
- Special audits vary by program, and alternative verification may be used for specific transactions.
- The process concludes with a review by the auditor, and potential eligibility for the Managed Audit Program if criteria are met.
What to expect during the audit?
During a California sales tax audit under the Managed Audit Program (MAP), you can expect the following:
- Under the guidance of a CDTFA auditor, you will review sales and purchase records to ensure correct tax calculation and reporting.
- You may need to verify transactions by sending letters to vendors or customers using specific forms and sample letters provided by the auditor.
- You will perform tasks such as reviewing tax returns, reports, and schedules. The auditor will provide detailed instructions.
- The auditor will review your completed work to determine whether additional tax is owed, a refund is due, or the returns were correctly filed.
- An exit conference will be held where the auditor will explain the proposed credits, refunds, or additional tax resulting from the audit.
- A Report of the Field Audit will be prepared, summarizing the findings. If disagreements arise, further review and discussion steps are involved.
- Provisions exist for appealing audit results, and refunds may be subject to review and approval.
After the audit – Appealing the results
Contesting audit findings with the auditor in the California Department of Tax and Fee Administration's (CDTFA) Managed Audit Program involves:
- Notice of Final Audit Results: The auditor prepares a summary of findings. If you disagree, further review and discussion are involved.
- Managed Audit Program Participation: If qualified, you conduct many audit tasks with guidance from the auditor.
- Appealing the Results: Participation in a managed audit doesn't change your right to appeal. You can consult with the auditor for more information on the appeals process.
- Finishing Up the Audit: After completing your work, the auditor reviews your documents and arranges an exit conference to explain the results.
- Verifying Information in Your Records: You review your invoices and follow procedures as explained by the auditor.
- Voluntary Participation: Participation is voluntary, with no adverse consequences for choosing a usual audit.
- Assembling and Reviewing Records: The auditor indicates which records to review, and you fill out worksheets to determine the correct tax amount.
The process is collaborative and transparent helping each of the involved parties know and keep track of progress end-to-end.
Sales tax registration
Registering for sales tax in California is a simple online process.
- Simply visit the CDTFA registration page
- Click on “Get started” under the registrations tab
- Scroll down on the login page to find the registration links
- Click on “Register for a permit, license, or account”
- Select “I am the owner of the business” and proceed to next
- Check if you have received the ownership chain access and then proceed to the final steps
- Your business activity, type, and products/services sold
- Taxpayer information like jurisdiction, state, business address, and contact info
- People involved in the business, along with their ID numbers (SSN, FEIN, etc.)
- Online and physical presence of the business. If you make online sales, provide ecommerce site and marketplace details.
- NAICS code for your industry
- Use tax and sales volume, including total/taxable sales and date sales began
- Provide supplier information and details of the person completing the form.
- Review all details entered and submit the registration form.
- There are no fees for registering for the seller permit.
More Information & Contacts
For sales tax filing and appeals in California, you would be required to contact:
- California Department of Tax and Fee Administration (CDTFA)
- Phone number: 1-800-400-7115
- Website: https://www.cdtfa.ca.gov/
There you have it—an in-depth guide on NY’s sales tax for ecommerce companies. Also, in case you need someone to deal with the sales tax fiasco, Numeral can lend a hand. We have done this for the likes of immi and Amberjack and would be delighted to help you folks as well.
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About the author
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Deb Mukherjee
Deb is the head of marketing at Numeral. He has worked with the likes of Shopify and Wonderment and has helped countless ecommerce stores scale through seamlessly. With a background in finance, he often finds himself advising stores on sales tax and good financial systems.
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