Implementing New Local Jurisdictions or District Taxes
If you represent a city, county or other local jurisdiction and would like to impose a new district tax, or if you are a community interested in incorporating into a new city or town, please read the section below to ensure a smooth administrative process.
What is the Difference between Local and District Tax
Local tax is not the same as district tax. It is important to know the difference when implementing a new tax in your community.
District taxes are imposed under the Transactions and Use Tax Law and are added to the statewide base tax rate of 7.25 percent (7.25%). Local taxes are imposed under the Bradley-Burns Uniform Local Sales and Use Tax Law*. Local taxes are imposed in every city and county in California at a uniform rate of 1.25%, which is a component of the statewide base sales and use tax rate (7.25%).
There is no direct correlation between local sales and use tax and district taxes. In general, local sales tax is allocated to the retailer’s place of business in California where the sale occurs even though the property sold may never be at the place of business. If a retailer has multiple locations in California, local sales tax is allocated to the place where the principal negotiations are conducted, whether or not the property sold is ever in the jurisdiction where the retailer's place of business is located. Local use tax is allocated to the place where merchandise is first functionally used, generally through countywide pools.
District tax is generally distributed to the district where goods are delivered or presumably used. In some cases, a retailer may allocate local tax but report no district tax to a jurisdiction if the merchandise was delivered to a location outside of the district where the sale took place for local tax purposes. On the other hand, if the merchandise is delivered into a district, a retailer may report district tax and not allocate any local tax to that jurisdiction.
New Local Jurisdictions
A community wishing to incorporate and become a city, town, or other jurisdiction (collectively referred to here as "local jurisdiction") will work closely with its county’s Local Agency Formation Commission (LAFC).
Your LAFC should notify California Department of Tax and Fee Administration’s (CDTFA) Local Revenue Branch (LRB) of pending plans for incorporation. Our LRB team members will provide guidance in areas such as confirming city boundaries, establishing tax area codes, and executing legal documents required for us to administer the local sales and use tax.
We encourage you to contact LRB for any questions or guidance with this process. You may contact our LRB by email at firstname.lastname@example.org or by telephone at 1-916-309-5800 for questions or assistance with this process.
What is a District Tax?
District taxes are transactions (sales) and use taxes imposed by certain cities, counties, and other local jurisdictions on the sale or use of tangible personal property (merchandise).
District taxes are approved by voters in those jurisdictions and are taxes imposed under the Transactions and Use Tax Law*. Not all areas in California impose district taxes. The maximum combined district tax rate within any county may not exceed 2% unless specifically authorized by statute. The statewide base sales and use tax rate is currently 7.25%, while the total tax rate is higher in areas where district taxes are imposed.
Application of District Tax to Retail Sales
For more information on how district tax applies to taxable retail sales, please see our Local and District Tax Guide for Retailers.
Who can Impose a District Tax
A county, city, or other authorized government entity can impose a district tax for general or specific purposes*. District tax can be imposed directly by the local government or through a special purpose entity. A county can also create a transportation authority to impose district taxes.
District Rate Cap
The combined rate of all district taxes imposed in any county must not exceed 2% unless specifically authorized by statute*. Generally, tax rates may be imposed at a minimum rate of 0.125% and increase in 0.125% increments up to the 2% cap in a county. Special legislation may vary this format, and, in some instances, a higher district tax rate may be imposed by a district. Any tax increase by the county would generally raise the tax rate in all the cities within that county.
A new district tax or an increase to a district tax becomes operative no earlier than the first day of the first calendar quarter beginning more than 110 days after the adoption of the ordinance*. A district tax must become operative on the first day of a calendar quarter. Please work with LRB to provide all the necessary documents promptly to ensure that the tax becomes operative in the first quarter possible. See Next Steps After Voters Approve a New District Tax, below.
For example, the operative date for a tax approved by the voters on November 2, 2021, would have an operative date of April 1, 2022, which is when retailers engaged in business in the district would be required to report and/or collect the tax for transactions because April 1 is the first day of the calendar quarter more than 110 days after the election.
Cost of Implementing a New District Tax
We will bill a new taxing district for preparatory charges to administer the new district tax*.
We will base the cost we charge you to implement your new district tax on the actual costs incurred after the tax has been approved by the voters. We are unable to provide the specific costs until all the charges have been submitted by our various units and other state agencies. Actual charges to be billed will include the cost of updating returns, programming for data processing, developing, and adopting regulations, updating publications, developing procedures, notifying taxpayers, and other necessary costs which include our direct and indirect costs**.
The statutory maximum amount of preparatory costs will not exceed $175,000.
** See section 11256 of the Government Code.
Next Steps After Voters Approve a New District Tax
Representatives from the district should contact us immediately after voters approve a new district tax. We will review the election results to ensure it meets statutory requirements and email you the required contracts which must be completed and returned.
A district must notify us as early as possible after the election to ensure a timely implementation of the new district tax. District tax representatives must sign and return two contracts to us prior to the operative date of the tax. The contracts include:
- Agreement for preparation to administer and operate the tax, and
- Agreement for ongoing state administration of the tax
An official for the jurisdiction must return the following:
- Five original "preparation to administer" contracts signed by an authorized official,
- Five original "ongoing administration" contracts signed by an authorized official,
- Five certified ordinances,
- Five certified resolutions authorizing the official to sign the contracts,
- One certified copy of the election results, and
- One mailing address form for legal, finance, and warrant correspondence.
LRB will provide you with these forms if you need them. You may email LRB to request the forms above or to return a scanned copy of each of the required items to email@example.com. Additionally, please also mail all original or certified items to the following address:California Department of Tax and Fee Administration
Local Revenue Branch
Attention: District Desk MIC:27
PO Box 942879
Sacramento, CA 95814
When we receive the executed contracts and other documents, our Department Director, or their designee, will issue an acknowledgement letter. We will then forward the contracts to the Department of General Services (DGS) for final approval.
Once the contracts are approved by DGS, they will return an approved original packet to the jurisdiction for their records. The jurisdiction will be given the opportunity to adopt a resolution authorizing city or county officials to examine district tax records and to submit an agreement (CDTFA-555-LJ, EFT Authorization Agreement for Local Jurisdictions) authorizing payment by electronic funds transfer.
For more information, please see Revenue and Taxation Code section 7270.
Cities Imposing a District Tax are Encouraged to Help Retailers
Many cities have boundary lines that are difficult for a retailer to identify to collect a district tax. Because of this, some retailers resort to using ZIP Codes which do not observe city boundary lines. This results in customers who live outside of the city boundaries but within the city's zip code to be overcharged by the retailers.
Cities wishing to impose a district tax are strongly urged to establish and maintain a current street listing on their websites for use by retailers.
You may contact our LRB if you have questions. Feel free to email us at firstname.lastname@example.org or call us at 1-916-309-5800.
Services Offered by our Local Revenue Branch
LRB can provide you with assistance in implementing a new local jurisdiction or district tax.
Our LRB team members are available to:
- Answer questions and assist districts in the process.
- Provide sample ordinances for a city, county, or special purpose entity (including a transportation authority).
- Review proposed ordinances from jurisdictions prior to their approval by the local governing legislative bodies to ensure that all statutory requirements have been met.
Please contact us by email at email@example.com or by telephone at 1-916-309-5800 for assistance or to obtain sample ordinances.
Listing of Law Sections that Allow for the Imposition of a District Tax
Below you will find a table that provides the jurisdiction type (city, county, etc.), tax purpose, general adoption rules, and relevant law sections for each entity type.
|Jurisdiction||Purpose||Adoption Rules||Revenue and Taxation Code (R&TC) Section|
|County||General Purpose tax||2/3 vote of Board of Supervisors and majority of voters||R&TC 7285|
|Specific Purpose tax (expenditure plan required)||2/3 vote of Board of Supervisors and 2/3 majority of voters||R&TC 7285.5|
|City||General Purpose tax||2/3 vote of City Council and majority of voters||R&TC 7285.9|
|Specific Purpose tax (expenditure plan required)||2/3 vote of City Council and 2/3 majority of voters||R&TC 7285.91|
|County Authority||Transportation Authority||2/3 vote of Board of Supervisors and 2/3 majority of voters||PUC Divisions 10-25|
Districts can also be created when authorized by special and specific legislation.