District Tax for Retailers

A retailer is “engaged in business” in a district if, for example, the retailer:

• Owns or leases any real or tangible personal property, including, but not limited to, a computer server, in the district.
• Maintains, occupies, or uses, 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.
• Has a representative, agent, or independent contractor operating in the district on their behalf or under their authority, or under the authority of their subsidiary, for purpose of making sales, taking orders, assembling or installing merchandise, training customers, making deliveries, or otherwise establishing or maintaining a market for your products.
• Receives rental payments from the leases of tangible personal property located in the district, such as leases of machinery, equipment, and furniture.
• Sells or leases vehicles or undocumented vessels which will be registered in the district.
• Has total combined sales of tangible personal property in California, or for delivery in California by the retailer and all people related to the retailer, exceeding $500,000 in the preceding or current calendar year.

Assembly Bill 147 and Senate Bill 92 amended Revenue and Taxation Code (R&TC) section 7262 to provide that, on and after April 25, 2019, a retailer engaged in business in a district includes any retailer that, in the preceding or current calendar year, has total combined sales of tangible personal property in this state or for delivery in the state by the retailer and all people related to the retailer that exceed $500,000. A person is related to a retailer if they have a relationship with the retailer described in Internal Revenue Code section 267(b) and the related regulations.

Accordingly, beginning April 25, 2019, any retailer required to be registered with CDTFA, whether located inside or outside of California that meets the $500,000 threshold in R&TC 7262, 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.

This means that if your sales of tangible personal property did not exceed the $500,000 threshold in the preceding calendar year, but your sales go over the threshold during the current calendar year, you are required to immediately begin collecting and paying the district use tax on all sales for delivery to California consumers. Your obligation to collect and pay all district use taxes will last, at least, through the end of the next calendar year.

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. Please see our online tax guide, Use Tax Collection Requirements Based on Sales into California Due to the Wayfair Decision, for more information.

When you have a business located in California but do not meet the $500,000 threshold, you are required to report and pay district tax on your sales made in districts in which you are engaged in business. You are engaged in business in any district, for example, where you store inventory (such as a warehouse or fulfillment center in California) or in which you deliver merchandise to your customers using your own vehicle.

For more information on out-of-state retailers and what it means to be “engaged in business” in California, see our Tax Guide for Out-of-State Retailers.

Out-of-State Retailer Whose Presence is Limited to a Stock of Goods (Inventory) in California

You are an out-of-state retailer with no physical presence in California except for a stock of goods (inventory) located in a fulfillment center or warehouse. Because you have inventory stored in this state, you are engaged in business in California and must register the location(s) where your inventory is held with the California Department of Tax and Fee Administration. You are responsible for reporting and paying district tax on your taxable sales for delivery in a taxing district where you have a stock of goods.

(As noted above, on and after April 25, 2019, you are considered engaged in business in all districts in California if, in the preceding or current calendar year, your total combined sales of tangible personal property in this state or for delivery in this state exceed $500,000.)

Materials

Construction contractors are generally the consumer of materials furnished and installed during the performance of a construction contract.

As the consumer of materials, you generally may not issue a resale certificate to your supplier for materials you will knowingly consume during the performance of your construction contract. Therefore, you will generally pay sales tax reimbursement, including district sales tax reimbursement, to your supplier based on the tax rate where the sale occurs, even if your jobsite is not located in a taxing district.

District use tax generally applies to the use of the materials at the jobsite in a district imposing district taxes. If you install materials at a jobsite in a district with a lower total tax rate than the district where the sale occurred, you may claim a credit against the district use tax liability. If you install materials at a jobsite in a district with a higher tax rate than the district where the sale occurred, you are liable for the amount of district use tax in excess of the reimbursement you paid for district sales tax.

If a contractor does not hold a seller's permit or is not otherwise required by law to report use tax in a different manner, the additional use tax liability can be paid by providing, in writing, all the following information:

1. A request that the correspondence be accepted as a return or a statement, regardless of how brief, indicating that you are attempting to file a return, and
2. The reporting period for which the correspondence (return) is filed, and
3. The amount of tax due for each district.

Your total reported use tax should be segregated by district based on where the materials were installed. This will assist CDTFA in distributing the use tax to the proper district.

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 Register, and then under Registration, select Register a New Business or Location. 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.

1. The rates provided are for example only and may not reflect the actual district tax rates. For current sales and use tax rates, please see our webpage California City & County Sales & Use Tax Rates.

Sales of Fixtures (and Materials When the Contractor is the Retailer of Materials)

Construction contractors are the retailers of fixtures and must have a valid seller's permit when making retail sales. If your jobsite is in a taxing district and you are making retail sales of fixtures in connection with a construction contract, you are required to collect, report, and pay district sales tax based on the rate imposed there.

If you did not issue a resale certificate and paid district sales tax for fixtures to your supplier at a higher district tax rate then the rate imposed at your jobsite location, you are allowed to take a tax-paid purchases resold deduction for the sales tax, including district sales tax. This is also true when you are considered the retailer of materials, for example, when the contract explicitly passes title to the materials prior to installation and the contract separately states the sale price of the materials exclusive of any charges for installation.

For more information about the application of sales and use tax to construction contractors and a more complete listing of property qualifying as materials, fixtures, machinery, and equipment, see Regulation 1521, Construction Contractors, and publication 9, Construction and Building Contractors.

Note: Mobile transportation equipment includes rail cars, locomotives, truck tractors and trailers, ships, reusable shipping containers, and airplanes. The law considers lessors of mobile transportation equipment to be consumers of the equipment. Consequently, they are usually required to pay tax on the purchase price.

District Use Tax Due on Purchase Price

As a lessor, if you lease the property in substantially the same form as acquired, you may make a timely election to pay use tax, including applicable district use tax, on the purchase price. If you do not make such a timely election, you must report and pay tax based on rental payments received.

District Use Tax Due on Lease Receipts

District use tax applies to lease receipts when:

• The property is used in a taxing district, and
• The payments are subject to the basic statewide use tax.

District use tax applies to lease receipts only while the property is used in an area with applicable district tax. If the property is moved into another district, the property would be subject to the district tax imposed at the new location; if moved to a location without district tax, no district tax would apply. Similarly, leased property which is first used outside a district and then moved into a district becomes subject to the district tax.

For more information on leases, including leases of motor vehicles, vessels, aircraft, and mobile transportation equipment, see publication 46, Leasing Tangible Personal Property.

The most common types of temporary seller's include sellers of:

• Fireworks
• Garage sales
• Christmas trees
• Property sold through Internet auctions
• Crafts
• Property at conventions, trade shows, swap meets, flea markets or other special events

District sales tax is due on sales that occur in an area with applicable district tax.

1. The rates provided are for example only and may not reflect the actual district tax rates. For current sales and use tax rates, please see our webpage California City & County Sales & Use Tax Rates.

Catering sales made in a taxing district, including where your business is located, will be subject to district tax. You will be responsible to collect, report, and pay district tax based on the rate in effect where the catering occurs.

If you are a caterer, our Tax Guide for Caterers may also be a helpful resource.

1. The rates provided are for example only and may not reflect the actual district tax rates. For current sales and use tax rates, please see our webpage California City & County Sales & Use Tax Rates.

As an itinerant merchant, you generally should collect, report, and pay district tax based on your permanent address shown on your seller's permit unless you deliver the property to the buyer outside the district for use outside the district. If your permanent address is not in a taxing district, your sales are generally exempt from district tax. However, they may be subject to district use tax if you solicit the sale in a district and ship or deliver the property to the buyer in the district. For the definition of “engaged in business,” please see the Retailer Engaged in Business in a District section.

When you travel to taxing districts other than where your registered place of business (usually your home address) is located and make taxable sales in those districts, you are considered engaged in business. District tax is due using either the effective city or county district tax rate, whichever applies.

1. The rates provided are for example only and may not reflect the actual district tax rates. For current sales and use tax rates, please see our webpage California City & County Sales & Use Tax Rates.

If you are an auctioneer holding an auction at a location with applicable district tax, your sales are subject to district tax in the same manner as other types of retailers unless otherwise exempt.

Please see the following resources for additional information on how district tax applies:

• Regulation 1610, Vehicles, Vessels, and Aircraft
• Publication 52, Vehicles and Vessels: Use Tax
• Publication 44, District Taxes (Sales and Use Taxes)
• Publication 105, District Taxes and Sales Delivered in California
• Publication 34, Motor Vehicle Dealers

The sales and use tax return includes CDTFA-531-A2, Schedule A—Computation Schedule for District Tax, to report your district tax. Depending on your business activities, if you make sales in taxing districts, you will be prompted to file Schedule A when you file your return online.

If you are not “engaged in business” in a district, then your customers are the people liable for the district use tax on tangible personal property purchased from you for storage, use, or other consumption in that district. As a courtesy to your customers, you may collect the district use tax from them and report and pay it on their behalf. If you do charge and collect the tax, you are liable for it.

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.

For questions about how to report your over-collected district tax, please contact our Customer Service Center at 1-800-400-7115 from 7:30 a.m. to 5:00 p.m. (Pacific time), Monday through Friday, except state holidays.

You may find the tax rates for each district on our California City and County Sales and Use Tax Rates webpage. This webpage includes a look-up tool, Find a Sales and Use Tax Rate by Address, located under the Current Tax Rates section, which allows you to find a tax rate based on an address.

To further assist you in finding the correct tax rate, our rate look-up service may also be integrated into your sales software to compute the tax rate for each of your sales. To see if our service will work with your application, select the Looking for the Tax Rate API link at the bottom of the Find a Sales and Use Tax Rate by Address page.