Sales Tax in California: Essential Guide for Businesses

If your business sells goods or taxable services to customers in California—whether online or at a physical location—you need to understand how California’s sales tax system works. It’s not only a legal obligation but also key to staying compliant and avoiding costly penalties.

In this comprehensive guide, we break down what California sales tax is, how it applies to your business, how much you need to charge, and how to stay on top of your filing responsibilities.

What Is Sales Tax and Who Needs to Collect It?

Sales tax is a tax imposed on the sale of tangible personal property in California. If you’re a retailer in California, you are required to collect this tax from your customers at the point of sale and remit it to the state.

If you’re engaged in business in California, you must:

• Register for a Seller’s Permit with the California Department of Tax and Fee Administration (CDTFA).
• Collect and remit sales tax on taxable transactions.

You are considered to be doing business in California if you:

• Have a storefront, warehouse, or office in California.
• Have employees or independent contractors working in California.
• Ship goods to customers in California using your own vehicle.
• Participate in trade shows or have representatives in the state.

How Much Sales Tax Should You Charge?

California’s base sales tax rate is 7.25%, but actual rates vary depending on the city and county where the sale occurs.

This base rate includes:

• 6.00% for the state.
• 1.25% for local governments (cities and counties).

Local District Taxes: Additional taxes approved by voters in specific districts can raise the sales tax rate to over 11% in some areas. For example:

• Los Angeles (2025): Up to 10.25% due to local measures.
• Lancaster: 11.25%
• Livingston: 8.75%

The CDTFA provides a tool for checking current rates by address, which is critical for businesses with online sales or deliveries across the state.

What Is Use Tax and Who Pays It?

Use tax complements sales tax and applies to purchases made out-of-state but used within California. If a customer or business buys taxable goods and wasn’t charged California sales tax, they are responsible for paying use tax.

This also applies to:

• E-commerce sales from out-of-state vendors.
• Equipment bought in another state but used in California.

Use tax rate = Sales tax rate for the location where the item is used.

How to Register and File Sales Tax

1. Get a Seller’s Permit Register online with the CDTFA. You’ll need to provide:

• Business structure and contact details
• Estimated monthly sales
• Federal EIN or SSN

1. Know Your Filing Frequency The CDTFA assigns your filing schedule based on your sales volume:

• Monthly
• Quarterly
• Annually

1. File Returns on Time Even if you had no sales, you must file a “zero” return. Late filings may result in penalties and interest.
2. Maintain Accurate Records Keep receipts, exemption certificates, resale certificates, and proof of tax collected. These are essential in case of a CDTFA audit.

Common Sales Tax Exemptions

Some goods and services are exempt from sales tax. Common exemptions include:

• Grocery food (not hot prepared meals)
• Prescription medicine
• Sales to the U.S. government
• Items purchased with EBT cards

Ensure you obtain and retain proper documentation for any exempt sales.

What About Online and Out-of-State Sellers?

Since the 2018 South Dakota v. Wayfair Supreme Court ruling, California requires out-of-state businesses to collect sales tax if they:

• Make $500,000+ in annual sales to California customers, or
• Have a physical presence in the state

Such businesses must register for a seller’s permit and follow all standard rules.

Special District Taxes

Special district taxes fund specific local needs like transportation, public safety, or housing programs.

Examples:

• Measure H (2017): 0.25% for homelessness initiatives in LA County.
• Measure A (2024): Replaces Measure H with a 0.5% tax starting in 2027.

These are layered on top of the base rate and vary by location.

Why Sales Tax Compliance Matters

Failing to collect, file, or pay sales tax properly can result in:

• Penalties and interest
• CDTFA audits
• Loss of business license

That’s why businesses often work with a CPA Los Angeles or Tax Advisor Los Angeles to stay on top of compliance.

How to Make It Easier

Digital Tools: Software like QuickBooks or Xero can help automate:

• Sales tax tracking by location
• Real-time rate updates
• Filing and payments

Professional Support: If you’re unsure how to manage sales tax for your business, Velin & Associates, Inc. offers tailored Accounting Services in Los Angeles to:

• Register and file sales tax
• Set up accurate recordkeeping systems
• Automate tracking and compliance

Final Thoughts

Sales tax in California is complicated, especially with local tax districts and frequent updates. Whether you’re starting a retail store, an online shop, or providing taxable services, staying compliant is non-negotiable.

Let us help you stay focused on growing your business, while we handle the details.
For more information about our services, please visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org