Publication 123, California Businesses: How to Identify and Report California Use Tax Due
Introduction

This publication explains how to examine your records to establish the use tax due on your purchases of physical merchandise (for example, supplies, furniture, fixtures, and equipment) from out-of-state sellers. If your business purchases items for use, storage, or consumption in California from a seller located outside California that does not collect and report the California use tax, you may owe California use tax. The use tax rate is the same as your local sales tax rate.

The use tax is intended to protect California sellers who otherwise would be at a competitive disadvantage when out-of-state sellers make sales of physical products to California customers without charging tax. The use tax also assures that all businesses in the state contribute fairly to the funding of state and local programs whether they choose to make purchases in California or outside the state.

When do you owe use tax on your purchases from out-of-state vendors?

In general, you owe California use tax when you purchase physical merchandise from out-of-state sellers for use, storage, or consumption in California. If the out-of-state seller does not collect and report the California use tax on your purchase, then you must pay the use tax directly to us, the California Department of Tax and Fee Administration (CDTFA).

If an out-of-state seller charges you California tax, you should obtain a receipt. The receipt must describe the item and show the purchase amount, the tax amount, the seller's name, address, and California seller's permit number (or use tax registration number), and your name and address.

While out-of-state sellers often apply tax at the statewide rate (currently 7.25 percent), you are liable for use tax at the full rate in effect at the California location where you will first use the merchandise. When that location is within a special tax district, the full tax rate in effect for the district applies (statewide tax rate + district tax rate[s]). If the seller charged you tax at a rate lower than the rate in effect for your location, you owe the remaining use tax. For information about tax rates in specific areas, refer to California City and County Sales and Use Tax Rates.

How do you review your purchase invoices for California use tax due?

Generally, if sales tax would apply when you buy physical merchandise in California, use tax applies when you make a similar purchase from a business located outside the state.

Examine your purchase invoices from out-of-state retailers in detail to make sure the retailer collected California use tax when it was due and that it was the correct amount (refer to previous section). Review of the general ledger asset accounts and Federal Income Tax Return depreciation schedules may assist you in identifying purchases that may be subject to use tax.

The California use tax is generally the liability of the purchaser and must be paid either directly to us or to the seller from whom the physical merchandise was purchased, if such seller holds a seller's permit or a Certificate of Registration—Use Tax. If you do not hold a permit or have an account with us for paying your use tax, you may report and pay use tax to the Franchise Tax Board (FTB) on your California income tax return.

If you believe that the out-of-state seller may have paid use tax on your purchase, thereby relieving you of responsibility for all or part of your California use tax liability, you may contact your out-of-state seller to verify their tax payment to us.

Are “Shipping and Handling” charges subject to California use tax?

Shipping charges are generally exempt from tax provided they are:

For delivery directly to the purchaser by common carrier, contract carrier, or U.S. Mail;
The invoice clearly lists delivery, shipping, freight, or postage as a separate charge; and
The charge is not higher than the actual cost for delivery.

To verify the actual shipping costs you should contact the seller. Without evidence of the actual cost, the consumer must pay use tax on the entire shipping charge related to the purchase of a taxable item.

If any of the three requirements are not met, the shipping charge is generally taxable. If “handling” is charged with shipping, the handling portion of the charge is subject to tax. Tax does not apply to charges for shipping and handling associated with nontaxable sales, for example, sales for resale (publication 100, Shipping and Delivery Charges).

How do I pay the California use tax?

California seller's permit

If you hold a seller's permit, you must pay use tax due when filing your sales and use tax return. You must enter the amount of your purchase(s) under “purchases subject to use tax” on the return for the period that includes the date when you first used, stored, or consumed the item in California. When you receive your seller's permit, we will instruct you to file your tax return either on a quarterly or quarterly prepay basis. Your tax return and payment are due after the close of each reporting period. For example, if you are on a quarterly reporting basis, the reporting period for the first quarter closes on March 31, your tax return and payment are due on April 30, the last day of the following month.

Required registration to report use tax

A “qualified purchaser” must register with us and annually report and pay use tax directly to us, as required by Revenue and Taxation Code section 6225. If you are not required to hold a seller's permit and are not currently registered with us for use tax purposes, you may be required to register as a “qualified purchaser.”

Prior to January 1, 2024, a “qualified purchaser” was defined as a person that received at least $100,000 in gross receipts from their business operations per calendar year and was not otherwise required to be registered with us. Gross receipts are the total of all receipts from both in-state and out-of-state business operations.

Beginning January 1, 2024, the definition of a “qualified purchaser” was revised to eliminate the requirement that the person receives at least $100,000 in gross receipts per calendar year from business operations. It instead requires that the person makes more than $10,000 in purchases subject to use tax (excluding vehicles, vessels, or aircraft) per calendar year if the use tax imposed on those purchases has not otherwise been paid to a retailer engaged in business in this state or authorized to collect the tax. This change is effective from January 1, 2024, through December 31, 2028.

On January 1, 2029, that definition of a “qualified purchaser” will revert to a person receiving at least $100,000 in gross receipts per calendar year from business operations.

You can register on our website by selecting Register Online under Register for a Permit and then selecting Register a New Business Activity. Once you have registered, you may pay any use tax due after filing your return. You can also register in person at any of our offices to report use tax.

For additional information, refer to publication 126, Mandatory Use Tax Registration for Service Enterprises.

Assembly Bill 1097 (Stats. 2023, ch. 355).

California income tax return

If you do not hold a permit with us for paying your use tax as described above, you may report and pay use tax to the FTB on your California income tax return. A Use Tax Table is included with the instructions for the FTB income tax return; it is a tool to assist you in reporting use tax when filing your annual income tax return. The Use Tax Table is only used for personal purchases less than $1,000, not for business purchases. Business purchases subject to use tax should be reported using actual business purchase receipts. The due date for use tax is the same as the due date for your state income tax return. The date the use tax liability was incurred must be within the tax year being reported on your state income tax return. The FTB will forward the use tax collected to us. If you are a qualified purchaser you are required to register with us to report and pay use tax.

Consumer use tax account

If you make frequent taxable purchases from out-of-state sellers and are not required to register for a use tax account as a qualified purchaser, you may register with us and obtain a consumer use tax account to report your purchases subject to use tax. You can register on our website, by selecting Register for a Permit. Once you have registered, you may pay any use tax due by filing your return. You can also register to report use tax in person at any of our offices.

We will give you an account number and instruct you to file your return either quarterly or quarterly prepay basis. Your tax return and payment are due after the close of each reporting period. For example, if you are on a quarterly reporting basis, the reporting period for the first quarter closes on March 31, your tax return and payment are due on April 30, the last day of the following month.

Vehicles, vessels, and aircraft

Special rules and reporting requirements apply to these purchases. Refer to Regulation 1610, Vehicles, Vessels, and Aircraft, and the following publications:

Purchase subject to use tax on one-time purchase

If you do not have a seller's permit and are not required to register for a use tax account as a qualified purchaser, you can report your purchase(s) subject to use tax on our website by selecting File and Return & Pay Taxes and click on File & Make a Payment. Once you have registered, you can pay any use tax due by filing your return. You can also register to report use tax in person at any of our offices. Use tax is due on purchases made prior to 2012 by January 31, of the following calendar year. Use tax is due on your purchase(s) made after January 1, 2012, by April 15 of the following calendar year in which you first purchased and used the property in California. Penalty and interest applies to payments received after the due date. Please contact our Customer Service Center for assistance at 1-800-400-7115 (TTY:711).

Are there any additional taxes or fees that are due on my purchases?

In addition to sales and use tax, as a consumer, you generally owe additional taxes or fees when you purchase: tires, lead-acid batteries, cigarette and tobacco products, lumber products, covered electronic devices (for example, laptops, monitors, tablets), or prepaid phones and cards (Prepaid Mobile Telephony Services (MTS)) from an out-of-state seller. If an out-of-state seller does not collect and report the tax or fee on your purchase, you must generally pay the additional taxes or fees directly to us.

How do I pay the additional taxes or fees?

If you purchased tires, lead-acid batteries, cigarette and tobacco products, or covered electronic devices, you are required to register for an account, file a return and pay the applicable tax or fee for the purchase of tires, lead-acid batteries, cigarette and tobacco products or covered electronic devices. You can register on our website, by selecting Register for a Permit. You can also register at any of our offices.

If you purchased Lumber products or prepaid MTS, you may make a one-time payment of the amount owed. For additional information on how to pay, you may visit our online services.

The tax and fee rates on specific products may be found on our website by selecting Tax and Fee Rates, and then select Special Taxes and Fees Rates.

Revision July 2026

Publication 123, California Businesses: How to Identify and Report California Use Tax Due Introduction