
Tax Guide for Grocery Stores
Industry Topics
View guide in other languages:
A grocery store is an establishment whose main line of business is the sale of food products and related items. This term includes separate grocery departments in department stores but does not include delicatessens, country or general stores, or businesses that only handle groceries as a small part of the business.
Sales of food products for human consumption are generally nontaxable. You should keep accurate and complete records of all purchases and sales to verify all exemptions claimed as exempt sales of food products.
For detailed lists of common taxable and nontaxable food products, please see publication 31, Grocery Stores, or call our Customer Service Center at 1-800-400-7115 (TTY:711).
The Basics
Sales and Use Taxes in General
In California, all sales are taxable unless the law provides a specific exemption. In most cases, taxable sales are of tangible personal property, which the law defines as an item that can be seen, weighed, measured, felt, or touched.
Use tax is a companion to California's sales tax and is due whenever you purchase taxable items without payment of California sales tax from an out-of-state vendor for use in California. You also owe use tax on items you remove from your inventory and use in California when you did not pay tax when you purchased the items. To pay use tax, report the purchase price of the taxable items under Purchases Subject to Use Tax on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.
If you consume or give away taxable non-food items such as soda or alcoholic beverages that you purchased without paying sales tax, you owe use tax based on the cost of those items to you. The use tax rate is the same as the sales tax rate in effect at the location of use.
For more information on use tax, see publication 110, California Use Tax Basics.
Seller's Permit
Most people who sell taxable items in California, even temporarily, must register with us for a seller's permit. Registering for a seller's permit is free, although in some cases, a security deposit may be required. If you have multiple locations, you must register each location with us. You can register with us for a seller's permit using our Online Services.
After you have registered with us, be sure to let us know about any changes to your business, such as, the ownership information of the business or your mailing or email address. It helps us keep your records up-to-date and inform you of important changes in laws, tax rates, or procedures. You can easily update your account information by contacting our Customer Service Center or any one of our field offices throughout the state.
Sales
Taxable Sales
Sales tax generally applies to sales of:
- Alcoholic beverages
- Books and publications
- Cameras and film
- Carbonated and effervescent water
- Carbonated soft drinks and mixes
- Cigarettes and tobacco products
- Clothing
- Cosmetics
- Dietary supplements
- Drug sundries, toys, hardware, and household goods
- Fixtures and equipment used in an activity requiring the holding of a seller's permit, if sold at retail
- Food sold for consumption on your premises
- Hot prepared food products (see Hot Prepared Foods)
- Ice
- Kombucha tea, if alcohol content is 0.5% or greater by volume
- Medicated gum, such as Nicorette or Aspergum
- Newspapers and periodicals
- Nursery stock
- Over-the-counter medicines, such as aspirin, cough syrups, cough drops, or throat lozenges
- Pet food and supplies
- Soaps or detergents
- Sporting goods
Nontaxable Sales
Sales tax generally does not apply to sales of:
- Baby formulas, including Isomil
- Cooking wine
- Energy bars, such as Power Bars
- Food products
- Granola bars
- Kombucha tea, if less than 0.5% alcohol by volume and naturally effervescent
- Carbonated fruit juices that contain 100% fruit juice, such as Martinelli's Sparkling Cider
- Noncarbonated sports drinks, such as Gatorade, Powerade, or All Sport
- Noncarbonated, non-effervescent drinking water
- Pedialyte
Nutritional Drinks
In general, tax does not apply to the sale of food products for human consumption, including most nutritional drinks. Nutritional drink products are generally milk-based or juice-based products that often promote themselves as having additional nutrients.
Sales of nutritional drinks are generally not subject to tax when they have nutrition facts on their label or package unless the label or package describes the product as a food supplement or adjunct, or the product is prescribed or designed to remedy specific dietary deficiencies or to increase or decrease vitamins, proteins, minerals, or caloric intake.
Sales of nutritional drinks are generally subject to tax when they have supplement facts on their label or package or are described as a food supplement, food adjunct, dietary supplement, or dietary adjunct on the label or package.
Hot Prepared Foods
Sales of hot prepared foods are generally taxable whether or not it is sold to-go or for consumption on your store premises.
Regulation 1603, Taxable Sales of Food Product, defines a hot food product as food that is heated to above room temperature. The food is still considered as a hot food product even after it has cooled because it is intended to be sold in a heated condition.
Notable Exception: Hot Bakery Goods
Sales of hot bakery goods, such as hot baked pretzels or croissants, to-go are exempt from sales tax. Sales of hot bakery goods for consumption at your store are taxable.
Combination Packages
When you sell two or more food items together in a combination package to-go for a single price, tax may apply depending on the components of the package.
If a combination package includes hot food or hot beverages, the sale of the entire package becomes subject to tax.
If you sell a combination package to-go that includes cold food and a soda, tax applies to the selling price of the soda.
Sales of food and beverages for your customers to eat in your store are always taxable.
Bag Fees
As required by state law, retailers who provide their customers with a reusable grocery bag or a recycled paper bag must charge at least 10 cents per bag. Local laws may require the retailer to charge its customer a different amount per bag. This charge is imposed upon the customer and is not subject to sales tax. Sellers should not include the bag fees in the gross receipt when filing sales and use tax returns.
For more information about the ban on single-use carry out bags, visit CalRecycle's Single-Use Carryout Bag Ban page.
California Redemption Value (CRV)
Generally, if the beverage you sell is taxable, tax also applies to the separate charge for CRV. The amount subject to tax is the combined selling price of the beverage, the container, and the CRV.
If you are bottling, producing, importing, or selling beverages in California, you may need to register with CalRecycle under the California Beverage Container Recycling and Litter Reduction Act. Visit the CalRecycle's Beverage Distributors and Manufacturers webpage for registration information.
The CRV program is administered by CalRecycle. Questions regarding the fee should be directed to them. This guide covers only how sales tax applies to CRV charges.
For more information about the CRV fee, visit the CalRecycle's Beverage Container Recycling webpage.
EBT Card—CalFresh Benefits
CalFresh is a federal aid program known as the Supplemental Nutrition Assistance Program (SNAP) and provides benefits to individuals who meet federal income eligibility rules. Electronic Benefits Transfer (EBT) cards containing CalFresh benefits are issued to qualified individuals by their respective county's human or social services department. CalFresh benefits may be used by qualified individuals to purchase eligible food items at authorized retail food stores.
Sales of eligible food items purchased with CalFresh benefits are exempt from tax, even if the sale of the food item is normally taxable. For example, sales of sodas, ice, and food coloring are exempt from tax when the sale is paid with CalFresh benefits.
If your customer has CalFresh benefit redemptions that exceed the total amount of eligible taxable food items, the remainder should be applied only to nontaxable food items. Tax applies to all sales of taxable items that are not eligible to be purchased with CalFresh benefits.
Under SNAP, items purchased with CalFresh benefits are considered to be sold to the United States government and are exempt from tax in California. However, items purchased with CalWORKs cash aid benefits are not considered sales to the United States government and are subject to tax, unless another exemption applies.
You are allowed to take a sales and use tax deduction for CalFresh benefits redeemed. For sales of exempt food products, claim the deduction under Nontaxable sales of food products on your sales and use tax returns.
For sales of eligible taxable items paid with CalFresh benefit, claim the deduction under Other deduction on your sales and use tax returns. There are various ways to compute the deduction amount. First, you may take the deduction of sales paid by CalFresh benefit on an actual basis if you separately account for those sales. Alternatively, there are two approved methods for computing the allowable deduction instead of separately accounting for sales paid with CalFresh benefit:
- Method 1: You may take a deduction on your sales and use tax return of two percent of the CalFresh benefit redemption amount during the period for which the return is filed.
- Method 2: You may take a deduction of a greater percentage if the purchase (retailer's cost) of taxable items eligible for CalFresh benefit is greater than two percent of the purchase of all items eligible for CalFresh benefits.
Example: | |
---|---|
Purchases of taxable items eligible for CalFresh benefits | $ 5,000 |
Purchases of exempt food products eligible for CalFresh benefits | $130,000 |
Total purchases of items eligible for CalFresh benefits | $135,000 |
The allowable percentage for CalFresh benefits deduction: $5,000 ÷ $135,000 = 3.7%
Customers may not use CalFresh benefits to buy items such as alcoholic beverages, tobacco products, pet food, soaps, paper products, vitamins, food that will be eaten in the store, or hot foods. If you are using Method 2, please exclude these items from your purchases of items that are normally taxable and are eligible for CalFresh benefits.
Lottery Sales
Sales of tickets for California Lottery games are not taxable, and you should not include them on your sales and use tax return as part of your gross receipts.
Remember, it is important to keep your receipts for nontaxable sales—such as lottery tickets—separate from receipts for taxable sales.
Manufacturer's Coupons, Rebates, and Other Promotions
If you accept discount coupons that allow your customers to purchase merchandise at a reduced price, tax is due on the amount you receive for the sale, plus any amount you receive from a third party as payment.
In cases where you offer your customers a store discount on taxable merchandise, but you are not being paid by any third party, you owe tax only on the amount received from your customer.
A manufacturer's discount is one where you receive money from a manufacturer or other party as reimbursement. The amount you receive from a manufacturer or other third party as reimbursement for a discount is considered part of your gross receipts and is taxable, along with the amount you receive from your customer.
Cigarette Buy-Downs
If a cigarette manufacturer or distributor offers a "buy-down" promotion, where you agree to sell certain cigarettes at a reduced price and receive compensation from the manufacturer or distributor, sales tax applies to the amount received from the customer plus any amount received from the manufacturer or distributor.
For more information, see CDTFA publication 113, Coupons, Discounts, and Rebates, and Regulation 1671.1, Discounts, Coupons, Rebates, and Other Incentives.
Newspapers and Magazines
Sales of newspapers, books, magazines, and periodicals are generally taxable. Tax also applies to sales of catalogs, maps, and books.
Pharmacy and Drug Store Sales
Prescription Drugs
In general, sales of prescribed drugs and other preparations used to treat, diagnose, cure, mitigate, or prevent disease are nontaxable.
To qualify for the exemption, the drug or preparation must be prescribed by a person authorized to prescribe the medicines, such as a licensed physician, dentist, or podiatrist, and the prescription must be filled by a registered pharmacist.
- A registered pharmacist is a person to whom a certificate has been issued by the Board of Pharmacy.
Over-the-Counter Medicines
Sales of over-the-counter medicines are generally taxable.
Examples of over-the-counter medicines include aspirin, cough syrups, cough drops, throat lozenges, and so on. If an over-the-counter medicine is prescribed by a physician and purchased from a pharmacist, the sales may not be taxable.
Diabetic Supplies
Tax does not apply to the sales or use of insulin and syringes, glucose test strips, or skin puncture lancets that are furnished by a pharmacist as directed by a physician to a diabetic patient for treating diabetes.
The items must be furnished by a pharmacist for testing the patient's own blood sugar levels. Sales of such items made to anyone other than a diabetic patient or furnished by anyone other than a pharmacist are taxable.
For more information on what qualifies as a medicine, see Regulation 1591, Medicines and Medical Devices.
Diapers and Menstrual Hygiene Products
Effective January 1, 2020, the sale and use of specified diapers and menstrual hygiene products are exempt from tax. If you are a retailer who sells these items, you should not charge or collect sales or use tax on these items.
The exemption provides for the following specified products:
- "Diapers" means diapers that are designed, manufactured, processed, fabricated, or packaged for use by infants, toddlers, and children.
- "Menstrual hygiene products" means tampons, sanitary napkins primarily designed and labeled for menstrual hygiene use, menstrual sponges, and menstrual cups.
If you sell diapers or menstrual hygiene products, you should continue to include sales of these qualifying items in the Total Sales on your sales and use tax return. You may then claim the deduction for these qualifying sales on your return. Under Nontaxable sales (deductions), Other Nontaxable Sales, select "Diapers" or "Menstrual hygiene products" for these sales.
Breast Pumps and Related Supplies
Beginning April 1, 2024, through March 31, 2029, the sale or purchase of breast pumps and related supplies are exempt from tax. The exemption applies to breast pumps, breast pump collection and storage supplies, breast pump kits, and breast pads.
The law defines the qualifying products as follows:
- A breast pump is an electrically or manually controlled pump device designed and marketed to be used to express milk from a human breast during lactation and includes the electrically or manually controlled pump device and any battery, alternating current (AC) adapter, or other power supply unit packaged and sold with the pump device at the time of sale to power the pump device.
- Breast pump collection and storage supplies are those items designed or marketed to be used in conjunction with a breast pump to collect milk expressed from a human breast and store collected milk until it is ready for consumption, and include, but are not limited to:
- Breast shields and breast shield connectors.
- Breast pump tubes and tubing adapters.
- Breast pump valves and membranes.
- Backflow protectors and backflow protector adaptors.
- Bottles and bottle caps specific to the operation of the breast pump.
- Breast milk storage bags.
- Other items that may be useful to initiate, support, or sustain breastfeeding using a breast pump during lactation that may be sold separately but are generally sold as part of a breast pump kit.
- A breast pump kit includes a breast pump and one or more of the following items:
- Breast pump collection and storage supplies.
- Other items that may be useful to initiate, support, or sustain breastfeeding using a breast pump during lactation that, so long as the other items sold with the breast pump kit at the time of the sale are less than 10 percent of the total sales price of the breast pump kit.
Please note that "breast pump collection and storage supplies" does not include the following items if not sold as part of a breast pump kit prepackaged by the breast pump manufacturer or distributor:
- Bottles and bottle caps not specific to the operation of the breast pump.
- Breast pump travel bags and other similar carrying accessories, including ice packs, labels, and other similar products.
- Breast pump cleaning supplies.
- Nursing bras, bra pads, breast shells, and other similar products.
- Creams, ointments, and other similar products that relieve breastfeeding-related symptoms or conditions of the breasts or nipples.
If you sell qualifying breast pumps and related supplies, you should continue to include your sales of these qualifying items in Total Sales on your sales and use tax return. You may then claim the deduction for these qualifying sales on your return. Under Nontaxable sales (deductions), Other Nontaxable Sales, select Other and input "breast pumps" or "breast pump-related supplies" under Description.
Service Charges
Service charges you make to your customers for money orders and returned checks are not subject to tax.
You should not include service charges for money orders or returned checks as part of your gross receipts on your sales and use tax return.
Bad Debt Deductions
If a check or credit card transaction is returned unpaid, and you find it to be uncollectible and write it off for income tax purposes, you may claim a bad debt deduction for the amount of the taxable sale.
You may only take the bad debt deduction if you previously reported the sale as a taxable sale to us. You must claim the deduction on your sales and use tax return for the reporting period in which you wrote it off. If you fail to take the deduction in the filing period you found it uncollectible, you must file a claim for refund and amend your return for the appropriate period, provided the limitation period for filing a claim for refund is still open under statute. For more information, see publication 117, Filing a Claim for Refund.
Generally, a transaction can include both taxable and nontaxable sales. The bad debt deduction can only be claimed for the taxable sales in which you reported tax at the time of the sale. For example, you receive a $100 check for $75 of nontaxable sales and $25 of taxable sales. If the check is returned, you may only take a bad debt deduction for the $25 of taxable sales you originally reported. Similarly, if you accept a check that includes an amount for cash back in addition to the sales of groceries, and the check is returned uncollectible, you are only eligible to take a bad debt deduction for the amount of taxable sales.
If you later collect the debt, any amount claimed as a deduction must be reported as a taxable sale in the period collected. You cannot deduct fees paid to collect the debt. For more information, see Regulation 1642, Bad Debts.
Sales of Fixtures and Equipment
If you sell any fixtures or equipment used in your business, you should pay taxes on the selling price. Sales of fixtures and equipment you use are taxable even if they occur as part of the sale, reorganization, or closure of your business.
For more information, see Regulation 1595, Sale of a Business—Business Reorganization.
Purchases
Items Purchased for Resale
When you issue a resale certificate to purchase taxable items for resale, you don't pay sales tax at the time of the purchase. Instead, sales tax applies when you sell the items at retail.
If you purchase an item with a resale certificate and use it, such as a soda or cleaning supplies, you owe use tax on the cost of the item at the same rate as the sales tax at the location of use.
Supplies, Equipment, and other Business Expenses
Purchases of items for use in your business, such as displays, advertising materials, bookkeeping and maintenance supplies, storage equipment, and refrigeration units, are subject to tax at the time of the purchase.
If you purchase such items from California retailers, the retailers will collect sales tax from you and report it to us. However, if you purchase equipment or supplies from an out-of-state retailer, the purchase is likely subject to use tax (see Use Tax). If the out-of-state seller does not charge California use tax, you should report the purchase price on your tax return under Purchases Subject to Use Tax.
Please note: Wrapping and packaging supplies used to wrap merchandise or bags in which you place items sold to your customers may be purchased for resale. All other purchases of supplies, however, are generally subject to tax.
Use Tax
If you purchase taxable items without paying tax and use the items instead of reselling, you owe use tax. For example, if you purchase soda for your inventory and issue a resale certificate, but give it away or drink it, you owe use tax based on its purchase price.
The use tax rate is the same as the sales tax rate in effect at the location of use.
To pay use tax, report the purchase price of the taxable items under Purchases Subject to Use Tax on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.
Inventory
Inventory Controls
Keeping good books and records will help you detect any losses early. We strongly recommend that you:
- Keep records of all merchandise removed from inventory.
- Keep accurate and complete records of sales and purchases.
- Take a physical inventory at least once a year.
- In the period between inventories, compute the cost of merchandise sold, add the expected percentage of mark-up, and deduct discounts for the period of time involved. Your computed figure should be very close to the sales made for the same period the prior year.
- Ensure that your records of purchases for resale are accurate and complete. Do not include supplies or other items that are not for resale.
Common Inventory Losses
Keep your eye out for the following types of losses:
- Money pocketed by employees and covered up by not ringing up the sale or ringing it up at a lesser amount.
- Merchandise stolen by employees, clean-up crews, or other persons with access to the store.
- Short deliveries or theft by delivery people.
- Shoplifting by customers.
Thefts of cash are not deductible for sales tax purposes because tax is measured by sales.
Cigarettes and Tobacco Product Taxes
Cigarettes and tobacco products are subject to the excise taxes imposed by the Cigarette and Tobacco Products Tax Law upon a distribution in this state.
As a retailer of cigarettes and tobacco products, you may only purchase and possess cigarettes and tobacco products for which the applicable excise tax has been paid. Retailers must obtain a distributor's license before purchasing untaxed cigarettes or tobacco products from an out-of-state seller who does not have a license issued under the Cigarette and Tobacco Products Licensing Act of 2003. A distributor's or wholesaler's license is required to sell to another retailer.
Distributors pay the taxes by purchasing cigarette tax stamps from us. Distributors are required to affix the tax stamps to each package of cigarettes before distribution. Additionally, tobacco product distributors pay the tax upon distribution.
As a retailer, your purchase invoice should include, among other items, the amount of California cigarette and tobacco products taxes due to us by the distributor. If you are also a licensed distributor, you may include the following statement instead of providing the amount of cigarette and tobacco products due to us: "All California cigarette and tobacco product taxes are included in the total amount of this invoice."
Please visit our Tax Education—Sales of Cigarette and Tobacco Products webpage for the list of publications related to cigarettes and tobacco products taxes, including publication 78, Sales of Cigarettes and Tobacco Products in California.
A retailer of cigarettes and tobacco products must:
- Have and maintain a valid California Cigarette and Tobacco Products Retailer's License prior to purchasing tax-paid products from California licensed distributors or wholesalers and prior to making retail sales of cigarettes or other tobacco products to your customers.
- Have a separate license for each location from which cigarettes or tobacco products are sold at retail.
- Display your license at each retail location in a manner clearly visible to the public.
- Have a California Electronic Cigarette Excise Tax permit if you sell eCigarettes containing or sold with nicotine at the time of sale. For more information, see Getting Started section under the heading California Electronic Cigarette Excise Tax and our Tax Guide for California Electronic Cigarette Excise Tax.
- Only purchase cigarettes affixed with a California tax stamp and tax-paid tobacco products.
- Keep puchase invoices for cigarettes and tobacco products for four years.
- Keep complete and legible cigarette and tobacco products purchase invoices at each licensed location for at least one year after the date of purchase. The invoices must be kept at the same location as the inventory.
- Purchase and sell only those cigarettes and roll-your-own (RYO) tobacco authorized for sale in California as listed on the Office of the Attorney General's California Tobacco Directory.
- Not purchase, possess, store, own, or sell flavored cigarettes, flavored tobacco products, or tobacco product flavor enhancers.
- Not purchase cigarettes or tobacco products from other retailers.
- Purchase your cigarettes and tobacco products only from a California-licensed cigarette and tobacco product distributor or wholesaler.
- If you purchase cigarettes or tobacco products from an out-of-state supplier who does not have a California Cigarette and Tobacco Products License, you must obtain a distributor's license in addition to the retailer's license, and remit California cigarette and tobacco products taxes directly to us.
- If you purchase tax-paid cigarettes or tobacco products to other retailers for resale, you must obtain a wholesaler's license in addition to the retailer's license.
- For more information, see publication 93, Cigarette and Tobacco Products Taxes.
- Does not apply to a tobacco product that is not subject to the tobacco products excise tax. For example, vape liquid that does not contain any nicotine (0 mg) are not subject to the tobacco products excise tax, but they are subject to the retail licensing requirement. For more information about tobacco products subject to the tobacco products excise tax, see Tax Guide for Cigarettes and Tobacco Products.
Transferring Products Between Stores
Generally, the transfer of cigarettes and tobacco products is not permitted. However, if you own multiple retail stores under the same legal entity, you may transfer portions of your cigarettes or tobacco products inventory from one retail store to another retail store if the locations involved in the transfer are held by the same legal entity, and you:
- Prepare a transfer log or similar document at the time of transfer, which contains all of the following information:
- The date of the transfer.
- The transferring retailer's name, address, and cigarette and tobacco products license number where the original purchase was made.
- The receiving retailer's name, address, and license number where the product was transferred.
- The supplier's (distributor or wholesaler) name and license number, purchase invoice number, and the date of the original purchase.
- A legible itemized list by supplier, date of purchase, and purchase invoice number of the transferred product with detailed descriptions and quantity transferred.
- Keep the original transfer log or similar document for four years from the date of purchase.
- Keep copies of the transfer logs or similar documents and purchase invoices at both locations involved in the transfer for at least one year from the date of the transfer.
- Provide copies of the transfer logs or similar documents and purchase invoices for the transferred product upon request during an inspection.
These requirements do not apply to tobacco products that are not subject to the tobacco products excise tax. For example, a vape liquid that does not contain any nicotine (0 mg) is not subject to these requirements, but a retailer of such products is subject to the retail licensing requirement.
You must provide such documentation upon request by our staff or law enforcement. See Regulation 4801, Records for more information.
Prepaid Mobile Telephony Services (MTS)
Sellers of prepaid wireless services are people that sell prepaid mobile telephony services to a consumer in a retail transaction.
Beginning January 1, 2023, the Emergency Telephone Users Surcharge Act expanded to include a 988 surcharge in addition to the 911 surcharge. These surcharges are imposed on purchasers (consumers) of prepaid MTS at a flat rate. The law requires sellers of prepaid MTS to collect, report, and pay the 911 surcharge and 988 surcharge on each retail transaction that involves a sale of prepaid MTS.
In addition to the 911 and 988 surcharges, until December 31, 2025, sellers of prepaid MTS may also be required to collect, report, and pay any applicable local charges. The rate is based either on your retail location or the location of your customer if you make sales online or remotely to California customers. Local charges, if applicable, are imposed on consumers of prepaid MTS as a percentage of the sales price of each retail transaction of prepaid MTS.
Please see our 911 Surcharge, 988 Surcharge, and Local Charge Rates webpage for the current 911 and 988 surcharge rates and local charge rates.