California: Sales Tax Handbook
What purchases are taxable in California?
The taxability of various transactions (like services and shipping) can vary from state to state, as do policies on subjects such as whether excise taxes or installation fees included in the purchase price are also subject sales tax. This reference is here to help answer your questions about what is and is not subject to the California sales tax.
Contents1.) Taxability of Goods and Services
- General California taxability guidelines
- Are services subject to sales tax?
- Is shipping & handling subject to sales tax?
- Are drop shipped items taxable?
Section 1: Taxability of Goods and Services
What transactions are generally subject to sales tax in California?
California requires that a sales tax be collected on all personal property that is being sold to the end consumer for "storage, use, or consumprion" within the state of California. Most leases are considered "continuing sales" by California, and are thus also subject to sales tax.
Are services subject to sales tax in California?
California does not generally collect sales taxes on services. However, services which are "inseparable from the sale of a physical product" (such as setup of a purchased machine) and fabrication/assembly services (services which create tangible personal property) are considered taxable.
Installation and repair services are not generally considered taxable. Note that the whether or not any particular service provided, such as construction, falls into one of these two categories can be complicated and up for debate.
You can find a table describing the taxability of common types of services later on this page.Top
Are shipping & handling subject to sales tax in California?
California has very complicated rules when it comes to taxes on shipping. Depending on your situation, shipping charges can be either tax-exempt, partially taxable, or fully taxable.
For shipping to be non-taxable, you must mail the product directly to the customer via common carrier, not utilizing vehicles owned by the seller, transport the item only after the product has been sold, and invoice the cost of shipping separately from the cost of goods. It must be noted that the tax(separately stated on the invoice) does not apply to the transportation of items used in a land fill only if the taxes are considered to be "reasonable", it is received for the sole purpose of transporting the materials, or if it is transported without charge.
If you charge the customer more than the actual cost of thipping the item, the extra amount charged to the customer is subject to sales tax. Rolled-in handling costs are taxable under this provision.
If you don't keep accurate records of shipping costs, include delivery charges in the cost of the product, or deliver with your own vehicle your shipping charges may be fully taxable.
Are drop shipments subject to sales tax in California?
"Drop shipping" refers to the common business practice in which a vendor, often in a different state, makes a sale of a product which is shipped to the end-user by a third party supplier hired by the initial vendor. In California, drop shipments are generally exempt from sales taxes. The state of California does not usually allow any seller who legally has tax nexus to accept any sort of resale exemption from a customer who does not have tax nexus, in a situation where the seller drop ships a property to any in-state customer. If an out-of-state retailer, otherwise known as a true retailer, holds a permit, and it issues the drop shipper any resale certificate for the sale, the drop shipper is is not responsible for reporting or paying the tax
Section 2: Taxability of Various Items in California
This table shows the taxability of various goods and services in California. If you are interested in the sales tax on vehicle sales, see the car sales tax page instead. Scroll to view the full table, and click any category for more details.
|Products on Amazon.com||TAXABLE *|
|General Clothing||TAXABLE *|
|Food and Meals|
|Grocery Food||EXEMPT *|
|Leases and Rentals|
|Tangible Media Property||TAXABLE|
|Manufacturing and Machinery|
|Raw Materials||EXEMPT *|
|Utilities & Fuel||EXEMPT *|
|Medical Goods and Services|
|Medical Devices||EXEMPT *|
|Newspapers and Magazines|
|General Occasional Sales||EXEMPT|
|Motor Vehicles||TAXABLE *|
|Optional Maintenance Contracts|
|General Optional Maintenance Contracts||EXEMPT|
|Parts Purchased for Use in Performing Service Under Optional Maintenance Contracts||TAXABLE|
|Pollution Control Equipment|
|General Pollution Control Equipment||TAXABLE *|
|Software and Digital Products|
|Canned Software - Delivered on Tangible Media||TAXABLE|
|Canned Software - Downloaded||EXEMPT *|
|Custom Software - Delivered on Tangible Media||EXEMPT|
|Custom Software - Downloaded||EXEMPT|
|Customization of Canned Software||TAXABLE *|
|Vending Machine Sales|
* See notes in category taxability page for details
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