Sales Tax Guide for California

What Is Taxable in California?

In California, most tangible personal property is subject to sales tax. However, certain exemptions exist, such as sales of some groceries, prescription medications, and certain medical devices.

If your business sells taxable goods or services, you must collect and remit sales tax appropriately. Businesses should also be mindful of use taxes when purchasing out-of-state products for use in California.

Who Needs to Collect Sales Tax?

Businesses required to collect sales tax include:

• Retailers with a physical presence in California
• Online sellers that meet the state’s economic nexus threshold
• Service providers if offering taxable services

California enforces an economic nexus threshold of $500,000 in sales. If your business surpasses this amount, even without a physical presence in California, you must register and collect sales tax. Non-compliance may lead to penalties, which is why utilizing doola’s Bookkeeping service can be crucial for staying compliant.

How to Register for a Sales Tax Permit in California

To obtain a sales tax permit in California, follow these steps:

1. Gather necessary business documents such as your EIN, business license, and relevant personal identification.
2. Visit the California Department of Tax and Fee Administration (CDTFA) website.
3. Complete the online application for a seller’s permit.
4. Once approved, start collecting sales tax.

Collecting tax without obtaining a sales tax permit is illegal in California. It is important to register before making taxable sales. For assistance, doola’s bookkeeping team can help simplify the registration process, allowing you to focus on your business.

How to Calculate Sales Tax in California

To calculate sales tax accurately, follow these guidelines:

Step 1:
Identify the applicable sales tax rate based on your location and the buyer’s location.

Step 2:
Collect the corresponding sales tax at the point of sale.

Step 3:
Maintain precise records of all transactions.

California requires sales tax returns to be filed monthly, quarterly, or annually, dependent on sales volume. Ensure timely filing to avoid penalties.

Bear in mind that local jurisdictions may have additional sales tax rates that need inclusion in your calculations.

Common Sales Tax Exemptions in California

Some businesses and individuals may qualify for sales tax exemptions, including:

• Purchases for resale (requires a resale certificate)
• Sales to certain nonprofit organizations
• Certain manufacturing equipment purchases

To claim an exemption, businesses must use correct exemption certificates and retain accurate records. Incorrect use of exemption certificates may result in audits and fines.

Remote Seller and Marketplace Sales Tax Rules in California

Remote sellers and marketplace facilitators such as Amazon or eBay are subject to specific sales tax regulations in California.

The economic nexus threshold is set at $500,000 in annual sales, necessitating compliance with California’s sales tax laws for remote businesses meeting or exceeding this amount.

California also mandates marketplace facilitators to collect and remit sales tax on behalf of third-party sellers using their platforms.

What Triggers a Sales Tax Audit

The California Department of Tax and Fee Administration may initiate an audit for reasons including missing or incorrect filings, frequent late payments, revenue discrepancies, and misuse of exemption certificates.

To mitigate audit risks, businesses should keep comprehensive transaction records, exemptions, and tax payments. Conduct regular internal audits to ensure compliance with tax filings.

FAQs About Sales Tax in California

Common questions about California sales tax include:

Are digital goods taxable in California? 

Most digital goods are tax-exempt, but verification with state regulations is advisable.

Do businesses outside of California need to collect California sales tax? 

If sales exceed $500,000 annually, then yes, they must collect and remit sales tax.

What if I overcharge or undercharge sales tax? 

Corrections may involve refunding customers or paying discrepancies to the state. Proper record-keeping helps avoid such issues.

Are services taxable in California? 

Many services aren’t taxed, but some like repair services or certain installations are taxable.

Stay Compliant With doola

Compliance with sales tax laws doesn’t need to be overwhelming. Keeping informed and using the right tools can help you avert penalties and keep your business running efficiently.

doola offers guidance and tools to ensure compliance, providing businesses with financial solutions, tax guidance, and bookkeeping support.