Internet Auction Sales and Purchases (Publication 177)
District Taxes

District taxes - sellers

If you are an Internet seller "engaged in business" in California and you are engaged in business in a district that imposes a transactions and use tax (district tax), you must report and pay district taxes to that district. Please see publication 44, District Taxes (Sales and Use Taxes). However, if you are not engaged in business in a district, you are not required to report and pay district taxes imposed by that district, but you must still report and pay tax at the statewide rate. For current tax rates, please see our California City & County Sales & Use Tax Rates page. Generally, if you are not engaged in business in a district and you ship by common carrier into the district, your customer is liable for the district use tax. As a courtesy to your customer, you may choose to collect the district use tax from them. If you do, it should be shown on the customer's invoice and you must report it on your return.

You are considered "engaged in business" in a district if you, for example:

• Own or lease any real or tangible personal property, including, but not limited to, a computer server, in the district.
• Maintain, occupy, or use, directly or indirectly, or through a subsidiary or agent, a permanent or temporary office, place of distribution, sales or sample room, warehouse or storage place, or other physical place of business in the district.
• Have a representative, agent, or independent contractor operating in the district on your behalf or under your authority, or under the authority or your subsidiary, for purposes of making sales, taking orders, assembling or installing merchandise, training customers, making deliveries, or otherwise establishing or maintaining a market for your products.
• Receive rental payments from the leases of tangible personal property located in the district, such as leases of machinery, equipment, and furniture.
• Sell or lease vehicles or undocumented vessels which will be registered in the district.
• Have total combined sales of tangible personal property in California or for delivery in California by you and all persons related to you exceeding $500,000 in the preceding or current calendar year (please see Additional district use tax collection requirement section below).

If you store inventory at various locations in California (at Internet auction houses' fulfillment centers for example), you are considered engaged in business in those districts where your inventory is located.

When you are engaged in business within a district, you are responsible for reporting and paying that district's sales and use tax, even if you do not collect it from your customer. Alternatively, if you collect excess district tax or tax reimbursement from your customer, you should either:

1. Refund the over-collected amount to your customer, or
2. Report and pay the over-collected amount on your sales and use tax return.

Applying one tax rate on all sales in California, such as an average combined tax rate for all districts in California, is not an accepted method of collecting tax or tax reimbursement. A retailer should not knowingly collect more sales tax reimbursement or use tax than the customer owes on a particular transaction, which will occur when the single rate is higher than the actual rate of tax that applies to the transaction. When the single rate is less than the actual rate on a particular transaction, as stated above, the retailer who is engaged in business in the district(s) remains liable for the entire amount of district tax owed, not just the amount collected from the customer.

Additional district use tax collection requirement

Beginning April 1, 2019, you are engaged in business in a district, if during the preceding or current calendar year, the total combined sales of tangible personal property in California or for delivery in California by you and all persons related to you exceed $500,000. A person is related to you, if they have a relationship with you, described in Internal Revenue Code section 267(b) and the related regulations.

Accordingly, beginning April 1, 2019, any retailer required to be registered with the CDTFA, whether located inside or outside of California that meets the $500,000 threshold is engaged in business in every district in the state whether or not they have a physical presence in those districts. As such, these retailers are required to collect the district use tax on taxable sales made for delivery in any district that imposes a district tax. Retailers that do not meet the $500,000 threshold are still engaged in business in any district(s) in which they have a physical presence. For more information, please see publication 44, District Taxes (Sales and Use Taxes) and the online guide, Use Tax Collection Requirements Based on Sales into California Due to the Wayfair Decision.

District taxes-purchasers

When making purchases, be sure to verify the tax rate that applies to your purchase. As stated above, generally, if the property is shipped by common carrier to you in your "home" district, the district use tax applies. So if you purchase tangible personal property through an Internet auction for storage, use or other consumption in a district, and the seller only charged you tax at the statewide rate, in most cases you will be liable for the additional district use tax.*

Tax applies to vehicles purchased over the Internet in the same manner as those purchased from a vehicle dealer or private party. Please refer to Regulation 1610, Vehicles, Vessels, and Aircraft, and publication 34, Motor Vehicle Dealers.

For district tax requirements on sales and purchases, please see publication 44, District Taxes (Sales and Use Taxes), and publication 105, District Taxes and Sales Delivered in California. For tax rates, see California City & County Sales & Use Tax Rates. For more information about the CDTFA, please refer to the homepage at www.cdtfa.ca.gov, as well as for all regulations and publications referenced in this publication.

*Please note: If you do not hold a California seller's permit, you can report and pay use tax on your California income tax return. You may also report your purchase(s) subject to use tax, including any additional district use tax you may owe, by filing a use tax return on the CDTFA's website at www.cdtfa.ca.gov. To do so, please complete the following steps: select Register, select Pay sales and use tax, returns, prepayments, or billings, select File a Return, and select One-Time Use Tax and/or Lumber Return. You can also register to report use tax in person at any of the CDTFA field offices. Please contact our Customer Service Center for assistance at 1‑800‑400‑7115  (TTY:711). If you have a California seller's permit, and need to report personal purchases not related to your business follow the steps above.

If you are a business that holds a seller's permit, you can report and pay use tax for your business purchases when submitting your return on line item Purchases subject to use tax.

District tax example

You purchase merchandise from an online seller who charges sales tax at the statewide rate (7.25 percent). The seller ships the merchandise to you in a special tax district where the total sales and use tax rate is 8.75 percent. You (the purchaser) are liable for the additional 1.50 percent district tax in the special tax district.