California Sales Tax Guide
Chapter 1: An introduction to California sales tax management
Sales tax is a tax paid to a governing body (state or local) for the sale of certain goods and services. First enacted in the United States in 1921, sales tax dates back to ancient Egyptian times where paintings depict the collection of tax on commodities. California first adopted a general state sales tax in 1933. Since that time, the rate has risen to 7.5. In the second quarter of 2015, the California Board of Equalization reported $10,329,916 in revenue from taxes on general sales and gross receipts; 20% of total California state taxes.
As a business owner selling taxable goods or services, you act as an agent of the state of California by collecting tax dollars from purchasers and passing it along to the state and local tax authority. This is an important point worth emphasizing. Any sales tax collected from residents belongs to the California Board of Equalization. As a business owner, it is your responsibility to manage the taxes you collect to remain in compliance with state laws and avoid penalty and interest payments.When does California sales tax need to be collected?
In California, sales tax is collected on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state and local tax authorities. The seller acts as a pseudo-tax collector.Do I need to collect sales tax in California?
To better understand whether you need to collect sales tax in California, we've created a simple three step checklist you can use to get a better feel for your California tax situation:
- Do I have nexus in California?
- Am I selling taxable goods or services to California residents?
- Is my buyer required to pay sales tax?
If the answer to all three of the questions above is "Yes", then you are required by the California Board of Equalization to collect, file, and remit sales tax.Does sales tax accept out-of-state resale certificates?
At the time of publication, the California Board of Equalization was not accepting out-of-state resale certificates. If you are an out-of-state business and choose to purchase goods for a vendor located in California, you can expect to pay sales tax.What happens if I don't collect any sales tax?
If you meet the criteria for collecting sales tax (nexus in California and selling taxable goods or services to taxable residents) and choose not to collect sales tax, you will be held responsible for the tax due. As such it is extremely important that you set up tax collection at the point of sale. Attempting to contact customers to collect sales tax after the fact is time consuming and unlikely to be fruitful.Is California a Streamlined Sales Tax (SST) state?
At this time, California is not a member of the Streamlined Sales Tax (SST) Agreement.What state sourcing rules apply to California?
California is a modified origin-based state. This means that state, county and city taxes are based on the ship-from address, but district taxes are based on the ship-to address.