Publication 44, District Taxes (Sales and Use Taxes)
District Taxes

What is a district?

A "district" is a local jurisdiction that, under enabling statutes in various codes, may impose transactions (sales) and use taxes within its borders. Voter-approved district taxes may be levied on a countywide basis and within incorporated city limits. A city district tax rate applies only to addresses within the incorporated city limits. A district tax may also be imposed by other governmental entities, like transit districts, within specified geographical limits. More than one district tax may be in effect in a given location.

What are district taxes?

District taxes are either transactions (sales) or use taxes. The Revenue and Taxation Code (R&TC) provides that transactions (sales) taxes are due from retailers on their sales of tangible personal property (merchandise) and use taxes are due from purchasers for their storage, use, or other consumption of tangible personal property in the district. In this publication, we will refer to such taxes generally as district taxes and designate them as either "transactions (sales)" or "use" taxes only when necessary. District taxes, if applicable, are additional to the current statewide tax rate of 7.25 percent, which is made up of three parts:

6.00 percent State,
1.00 percent Local Jurisdiction, and
0.25 percent Local Transportation Fund

Who is responsible for reporting and paying district taxes?

Since transactions (sales) taxes are imposed on the sale of tangible personal property in a district, you are responsible for reporting and paying transactions (sales) tax if you are a retailer located in a district, even if you do not collect tax reimbursement from your customer. Generally, if you have more than one business location that participates in a sale, your liability for district tax will depend on the location where you conduct principal negotiations for the sale. For more information about the application of tax to sales by businesses with multiple locations or with no fixed location, see Retailers with multiple locations.

Since district use taxes are imposed on the storage, use, or other consumption of tangible personal property in a district, you may be responsible for collecting and reporting district use tax if:

You are a retailer "engaged in business" within a district. (See next section.)
You lease, store, or consume tangible personal property in a district.

If you collect excess district tax or excess tax reimbursement from your customer, according to Regulation 1700, Reimbursement for Sales Tax, you must either:

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

What does "engaged in business" in a district mean?

You are engaged in business in a district if you are a retailer who:

Owns or leases real or tangible personal property, including a computer server, in California, or
Maintains, occupies, or uses any type of office, sales room, warehouse, stock of goods, or other place of business in the district, even if it is used temporarily, indirectly, or through an agent or subsidiary, or
Has any representative operating in the district for making sales or deliveries, installing or assembling tangible personal property, taking orders, or
Receives rentals from a lease of tangible personal property located in the district, or
Sells or leases vehicles or undocumented vessels which will be registered in a district, or
Has total combined sales of tangible personal property in California or for delivery in California exceeding $500,000 in the preceding or current calendar year. (See next section.)

Additional district use tax collection requirement

A retailer is engaged in business in a district if, during the preceding or current calendar year, the total combined sales of tangible personal property in this state or for delivery in this state by the retailer and all individuals related to the retailer exceed $500,000. A person is related to a retailer if they have a relationship with the retailer as described in Internal Revenue Code section 267(b) and the related regulations.

Any retailer required to be registered with us, whether located inside or outside of California, who meets the $500,000 threshold is engaged in business in every district in California 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 districts that impose a district tax. Retailers who do not meet the $500,000 threshold are still engaged in business in any district where they have a physical presence. For more information, see our guide Use Tax Collection Requirements Based on Sales into California Due to the Wayfair Decision.

Retailers must use the proper tax rate

Retailers may not apply one tax rate to all sales in California, such as an average combined tax rate for all districts in California; this is not an accepted method of collecting tax or tax reimbursement. A retailer should not knowingly collect more state or district sales tax reimbursement or state or district use tax than the customer owes on a particular transaction, which would occur if the single combined average rate is higher than the actual rate of tax that applies.

When a single average rate charged is less than the actual rate on a particular transaction, as stated above, the retailer engaged in business in the district remains liable for the entire amount of district tax owed, not just the amount collected from the customer. For more information on tax rates, see California City & County Sales & Use Tax Rates.

Courtesy collection of district use tax

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 more information, see California City & County Sales & Use Tax Rates. 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 to us. As a courtesy to your customer, you may choose to collect the district use tax from them. If you do, you must separately state the tax owed on the customer’s invoice and you must report it on your return.

What are some of the differences between district taxes and sales and use taxes?

Since district tax ordinances must incorporate provisions of the Sales and Use Tax Law, the taxes are generally the same except for the following:

Sales of property made in a district and delivered to a customer outside the district may not be subject to the district sales tax. For more information, see Property delivered to another district.
Retailers located outside a district delivering property into a district may be required to collect the district’s use tax if they are engaged in business in the district.
Retailers or lessors of vehicles or undocumented vessels are required to collect district use tax imposed in the district of registration. For more information, see Declaration to relieve retailers of the obligation to collect transactions (sales) tax for sales of certain vehicles, aircraft, and undocumented vessels when delivered to purchaser outside of the district.
Sales of tangible personal property, other than fuel or petroleum products, to operators of aircraft are exempt from transactions (sales) tax if (1) the aircraft is used as a common carrier of people or property and (2) the property purchased will be used or consumed principally outside the district where the sale was made.
Fixed-price contracts, including leases entered into prior to the starting date of a new district tax, may not be subject to that district tax. For more information, see Fixed-price construction contracts.

What exempts a "fixed-price contract" from district taxes?

To qualify as an exempt fixed-price contract, a contract must meet the following conditions:

It must have been entered into prior to the district tax’s effective date. Contracts for which an irrevocable bid was submitted prior to the effective date will qualify even when signed on or after that date, provided they are signed during a period for which the bid is still irrevocable.
It must be for a fixed amount. A contract may not have any clauses that allow for increases or decreases in the contract price because of a change in the tax rates or the cost of the property to be furnished. This provision is not invalidated if the contract allows change orders. Change orders are considered separate contracts.
All parties to the contract must be obligated to the terms of the contract. No party can have the unconditional right to terminate the contract, whether or not that right is exercised.
The sales tax amount or rate must be specifically stated in the contract, or the contract must be tax-included.

The exemption allowed for fixed-price contracts applies not only to standard retail sales contracts, but also to sales of materials and fixtures under fixed-price construction contracts and to contracts for leases of tangible personal property. For more information, see Fixed-price construction contracts and Leases of tangible personal property in general.

Revision June 2026

Publication 44, District Taxes (Sales and Use Taxes) District Taxes