Publication 61, Sales and Use Taxes: Tax Expenditures Fiscal Year 2023–24
Tax Expenditures: Exclusions by Definition
Various Types of Property and Business Activities Are Excluded From the Imposition of Tax Because of Basic Definitions Contained in the Sales and Use Tax Law
“Sales Price” and “Gross Receipts”
Cash Discounts
Discounts taken on sales are excluded from the measure of tax. Manufacturers’ coupons are rebates and do not reduce the measure of tax, but a retailer’s own coupons qualify for exclusion as cash discounts.
Diesel and Use Fuel Tax
Excise tax on diesel and alternative fuels imposed under the California Diesel Fuel Tax Law and the Use Fuel Tax Law is not included in the sales price subject to tax. California motor vehicle fuel license taxes and federal excise taxes on fuels such as gasoline are, however, included in the measure of tax.
Diesel Fuel
The sales tax rate for diesel fuel from October 1, 2022, through September 30, 2023, is 9.0625 percent (9.0625%) plus applicable district taxes. However, during this period the state diesel fuel tax amount is not included in the calculation of gross receipts for sales tax purposes.
Federal Excise Taxes
The amount of any tax imposed by the United States on retail sales is not subject to sales or use taxes. However, federal taxes levied on property are included in the measure of tax if imposed at other than the retail level such as on manufacturers or wholesalers.
Indian Tribal Taxes
The amount of any tax imposed by an Indian tribe within California with respect to a retail sale of tangible personal property measured by a stated percentage of the sales or purchase price, whether the tax is imposed upon the retailer or the consumer, is not subject to the use tax. However, this exclusion only applies to retailers who are in substantial compliance with California’s sales and use tax laws.
Installation Labor
Labor or service to install or apply property sold is not subject to tax, but the charges for other services in connection with a sale are subject to tax.
Intangible Personal Property
The amount charged for intangible property transferred with tangible personal property in a technology transfer agreement, if the technology transfer agreement separately states a reasonable price for the tangible personal property, is excluded from the definition of “gross receipts” and “sales price” and is not subject to tax. A “technology transfer agreement” means any agreement under which a person who holds a patent or copyright interest assigns or licenses to another person the right to make and sell a product or to use a process that is subject to the patent or copyright interest.
Local Taxes
Taxes imposed on retail sales by local governments and transit districts are excluded from the definition of “gross receipts” and “sales price” and are not subject to sales or use tax.
Motor Vehicle, Mobilehome, or Commercial Coach Fees and Taxes
Taxes or fees imposed by the State of California added to, or measured by the sales price of a motor vehicle, mobilehome, or commercial coach, such as DMV license fees, are excluded from “gross receipts” and “sales price” and are not subject to sales or use tax.
Returned Merchandise
Amounts allowed by a retailer for returned merchandise are excluded from “gross receipts” and “sales price” and not subject to tax provided the full sales price and any amount designated as “sales tax” is returned to the customer, and the customer is not required to purchase a more expensive item to receive credit. The retailer may deduct actual expenses for rehandling and restocking without affecting this deduction.
Tax-Paid Purchases Resold
A retailer may take a deduction from “gross receipts” for California tax or tax reimbursement paid on the purchase of property that is resold in California prior to any use.
Transactions Not Considered Sales or Purchases of Tangible Personal Property
Admission Charges
Fees charged for the use of amusement parks, theaters, sports events, golf courses, and so on, are not subject to sales or use taxes because there is no exchange of tangible personal property.
Finance Charges
Receipts for finance charges are for the use of money or other value transferred on credit. Therefore, such receipts are not subject to sales or use taxes even though the debt was incurred due to the transfer of tangible personal property.
Lodging
Motel, hotel, apartment, house, duplex, and other charges for short-term or long-term use of real property are not subject to sales or use taxes since such charges do not constitute consideration for the sale or use of tangible personal property.
Real Property
Sales and purchases of land along with the structures thereon and their component parts, and other items permanently attached to the land sold are generally not subject to tax because such items do not fall within the definition of tangible personal property under the Sales and Use Tax Law.
Securities
The sale of stocks, bonds, and other securities including memberships in limited liability companies are not subject to sales or use taxes because they are not considered to be sales of tangible personal property.
Services
The sale of services where no tangible personal property is transferred or where the transfer of property is incidental, are not subject to sales and use taxes. People providing services are consumers of property used in their business activities. However, people who engage in service operations are retailers of any supplies or other tangible personal property sold to their customers or clients, and tax applies to gross receipts from such sales. Certain services, however, are defined as sales of tangible personal property. For example, the fabrication of tangible personal property for a consumer is defined as a “sale” even when the consumer provides all the tangible personal property used to fabricate the end product.
Transportation Charges
Separately stated charges for transportation from the retailer to its customer are excluded from the definitions of “gross receipts” and “sales price” and are not subject to tax if transported by common carrier and the amount charged is the cost of the transportation. In addition, reasonable charges for transportation by the retailer’s facilities or for property sold for a delivered price are not taxable if separately stated and if title to the property passes to the purchaser prior to such transportation. Note, however, that title passes to the customer prior to transportation by the retailer’s own facilities only if the seller and purchaser explicitly contract for such early passage of title.
Travel Accomodations
Charges for tickets to travel on aircraft, trains, ships, and other modes of transportation are not subject to sales or use tax.
Exclusion From the Term “Person”
Foreign Governments
Foreign government entities are not “persons” for sales and use tax purposes. Sales by and purchases from such entities are not subject to sales or use tax. In addition, the use of property by the entities is not subject to use tax. However, sales to these entities in California are subject to sales tax except when a treaty requires an exemption.
State Governments
State government entities, other than California state and local government entities, are not “persons” for sales and use tax purposes. Sales by and purchases from such governmental entities are not subject to tax. The use of property in California by other states is not taxable. However, sales in California to other states are subject to sales tax.
Revision December 2025