Tax Guide for New Permit and License Holders
Managing Your Sales
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Pro Tips to Doing Business with CDTFA Successfully
We know that running a business can be challenging; therefore we want to help you succeed. The following tips can help you avoid problems with paying your taxes and fees.
| Put the Taxes and Fees Collected into a Separate Bank Account | The taxes and fees you collected from your customers are meant to be remitted to California Department of Tax and Fee Administration (CDTFA) along with your tax or fee return. It should not be used to pay other business or personal financial obligations. Set aside the actual amount of taxes or fees collected in a separate account. |
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| File and Pay Together On or Before the Due Date | You are required to file and pay your taxes or fees on or before the due date. Note your due dates on your calendar so you won't forget. For many accounts, you can file your return and make payments together online. |
| Don't Forget to Report and Pay Use Tax if You Owe It | Your online purchases may be subject to use tax. For more information go to California Use Tax Information. |
| Report Accurately | Make sure the amounts you report on your return are the total taxes or fees you collected from your customers plus any use tax you owe. |
| Keep Books and Records for a Minimum of Four Years | You are required to keep all your tax and fee records for at least four years. |
| Keep CDTFA Notified of Changes | You are required to keep us notified of changes to your business, including changes in ownership, address, contact information, or when you close your business. You can submit changes on form CDTFA-345-WEB, Notice of Business Change. |
Recordkeeping
If you hold a California seller's permit or other CDTFA license or permit, you are required to maintain your business records to verify that you have properly paid the tax or fee.
Records must be kept for at least four years. If you are being audited, retain all records that cover the audit period until the audit is complete, even if it is longer than four years.
Your records should be adequate so CDTFA representatives may:
- Verify the accuracy of your tax or fee returns; and
- Determine if you have correctly paid the tax or fee due on your sales and purchases.
Records you should keep include but are not limited to:
Sales
- Sales invoice
- Cash register tapes
- Sales journal
Purchases
- Purchase invoices
- Cancelled checks
- Purchase orders
- Purchase journals
Exemptions
- Resale certificates
- Exemption certificates
- Shipping documents
Returns
- Schedules
- Working papers
Other taxes and fees have their own recordkeeping requirements. For specific information on recordkeeping for other taxes and fees, please see Special Taxes and Fees Programs.
For more information, please go to Keeping Records or view our tutorial video Sales and Use Tax Record Keeping Requirements.
Sales Made on State-Designated Fairgrounds
Effective July 1, 2018, if you are a retailer who makes sales of tangible personal property that take place on the real property of a California state-designated fair (“state-designated fairground”), you must separately state the amount of those sales on your Sales and Use Tax return.
Sales that take place on state-designated fairgrounds include over-the-counter sales on the fairgrounds and also may include sales in which the property is shipped or delivered to or from the fairground. The separately reported amount will be used for funding allocation purposes only. There is no additional tax or fee due on these sales.
For more information on the new reporting requirement, please see Tax Guide for Reporting Requirements on State-Designated Fairgrounds.
Know Your Tax and Fee Rates
Tax rates vary by location and may change during the course of the year. When there is a tax rate change, we will post a special notice on our website.
Sales and Use Tax
The sales and use tax rate in a specific California location is comprised of four parts: state tax rate, local tax rate, county rate, and any district tax rate that may be in effect.
As a retailer in California, you have a duty to report and pay the state's sales tax, which applies to all retail sales of goods except those sales that are exempted by law. The current statewide sales and use tax rate is 7.25 percent. In addition, you are also responsible for any voter or local government approved district taxes that exist in cities and counties in which you are engaged in business.
We offer several tools on our website to help you identify the correct tax rate. You can look up a tax rate by address or look up tax rates by city and county.
To view notices of tax rate changes, please go to Special Notices on our website.
For more information on how to determine your sales and use tax rates, please see California City & County Sales & Use Tax Rates.
Other Taxes and Fees
Other taxes and fees have different rates based on the tax or fee program. To find rates for other taxes and fees, please see the rate tables at Tax-Rates Special Taxes and Fees.
Use Tax
If you purchased property without tax and used it in your business, you may owe use tax.
Out-of-state Purchases
California's sales tax generally applies to the sale of merchandise, including vehicles, in the state. California's use tax applies to the use, storage, or other consumption of those same kinds of items in the state.
Generally, if sales tax applies when you buy physical merchandise in California, use tax applies when you make a similar purchase without tax from a business located outside the state.
If you hold a California seller's permit, you must report and pay the use tax due on business related purchases on your sales and use tax return in the period in which your business first used, stored, or consumed the merchandise in California.
For more information, please see California Use Tax Information.
Inventory Withdrawals
As a registered seller's permit holder, you are entitled to purchase property that you plan to resell without payment of tax. However, if you remove items from resale inventory and make a use of the property rather than reselling the property, you owe use tax on your purchase price of the property. If you hold a California seller's permit, you must report and pay the use tax due on property withdrawn from resale inventory on your sales and use tax return.
For example, if you give away merchandise as a gift or use the property yourself, you owe use tax on the purchase price of the property. Also, if you use resale inventory for marketing purposes or research and development, that is considered a use of the property and you owe use tax on the purchase price of the property.
Other Taxes and Fees
In addition to use tax, if you purchase property without paying certain taxes and fees, you are required to report taxes on those purchases to CDTFA. Some examples include:
Cigarette Internet Tax Program — If you purchased untaxed cigarettes and/or tobacco products from out-of-state internet retailers, and/or by the way of mail or telephone, for self-consumption in California, you are responsible for the excise tax and the use tax. Please see the PACT Act & Consumer tab on our Tax Guide for Cigarettes and Tobacco Products for more information.
Covered Electronic Waste (eWaste)Recycling Fee — If you purchased a covered electronic device (CED), such as televisions or computer monitors, for personal or business use, and did not pay the eWaste fee at the time of purchase, you must register and pay the fee to CDTFA. Please see our Covered Electronic Waste Recycling Fee Guide for more information.
Tire Recycling Fee — If you purchased new tires for personal or business use, and did not pay the tire fee at the time of purchase, you must register and pay the fee to CDTFA. Please see our California Tire Fee for more information.
Exempt Sales
Depending upon your type of business, some of your sales transactions may qualify for a full or partial sales tax exemption.
Exempt sales are transactions not subject to tax and a deduction for those transactions can be taken on your sales and use tax return. You must obtain all documentation to support the deduction. For a list of all exemptions, please see publication 61, Sales and Use Taxes: Tax Expenditures. Some common exempt sales transactions include:
| Sales for Resale | You may have customers who purchase goods from you with the intent of reselling those goods in their own regular course of business. If your customer provides you with a valid CDTFA-230 General Resale Certificate and you accept it in good faith and in a timely manner, your sale to them is not taxable. To be valid, resale certificates must contain specific information. A record of resale certificates must be retained to substantiate claims that a sale was for resale. For more information, please see publication 103, Sales for Resale. |
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| Food Products | The sale of food for human consumption is generally exempt from tax unless sold in a heated condition (except hot bakery items or hot beverages, such as coffee, sold for a separate price), served as meals, consumed at the seller's facilities, or sold for consumption at a location where admission is charged. Sales of nontaxable food must be separately accounted for and supported by documents, such as guest checks or cash register tapes. For more information, please see our Tax Guide for Restaurant Owners or our Tax Guide for Grocery Stores. |
| Nontaxable labor | Generally, tax does not apply to your itemized charges for repair or installation labor. However, in California some types of labor charges are subject to tax. For instance, charges for fabrication labor are generally taxable, whether you itemize your labor charges or include them in the price of the product. You must keep records of all sales invoices showing segregated charges for labor not subject to tax. For additional information, please see publication 108, Labor Charges. |
| Sales to the United States Government | Your sales and leases made to the United States government and its instrumentalities are generally exempt from California sales and use tax. The following documentation must be retained to support the tax exempt sale:
Keep in mind that this sales and use tax exemption only applies to sales to the United States government and its instrumentalities. Sales to state, county, and city government agencies are still generally subject to tax. For more information, please see publication 102, Sales to the United States Government. Unlike sales and use taxes, other taxes and fees in connection with sales to the U.S. Government may not be exempt. For questions concerning the application of other taxes and fees, please contact our Customer Service Center at 1-800-400-7115. |
| Sales in Interstate or Foreign Commerce | Sales that involve shipments or deliveries from California to locations outside the state are generally exempt from sales or use tax if certain conditions are met. However, when you deliver goods to a California resident at an out-of-state location, it is presumed that the goods were purchased for use in California. You are required to collect the use tax, calculated on the sales price of the goods, and remit it to CDTFA. You are relieved from collecting the tax if you receive a signed statement from the purchaser stating that the goods were purchased for use outside the state. In general, you must retain all documents that will support any tax exemptions you claim. For a list of documents you should keep, please see the Documenting Your Sale and Delivery section in publication 101, Sales Delivered Outside California. |
| Manufacturing Exemption | The manufacturing exemption allows manufacturers to receive a partial sale and use tax exemption on specific manufacturing and research and development equipment purchases if the purchaser and the transaction meet certain conditions. You must obtain a timely exemption certificate from your customer to support the partially exempt sale. |
| Partial Exemptions | Partial exemptions are transactions exempt from the state portion of the sales and use tax rate. To claim a partial exemption on your return, you must obtain a valid, timely partial exemption certificate from your customer. Below is a list of the most common partial exemptions: |
Purchasing Property for Resale
If you purchase property for resale, the transaction is not subject to sales or use tax if the sale is properly documented.
Your supplier will ask you to provide a resale certificate as proof that the property was purchased for resale. You should not provide a copy of your sellers permit in-lieu of a resale certificate. The certificate must be taken in good faith and in a timely manner, which is any time within your normal billing and payment cycle and must include specific information. If you make several purchases from one vendor, you may file one resale certificate with that vendor to keep on file.
You may use a resale certificate to buy property that you will:
- Sell, as is, in your regular business operations
- Sell as a physical part of another product
- Use for demonstration or display while holding it for sale in your business
You should not use a resale certificate when buying a product that you will:
- Use rather than sell
- Use before you sell it
- Use for a personal purpose
If you knowingly use a resale certificate to purchase items that you will not resell, you will owe the tax due on the transaction, plus interest. For each purchase made for personal gain or to evade the payment of taxes you may also be required to pay a 10 percent penalty of the tax due or a $500 fine, whichever is greater, for each purchase.
For more information on using a resale certificate, see publication 103, Sales for Resale.
Itinerant Sellers (sellers that travel)
If you maintain no permanent place of business and your business activities consist of you or your sales representatives travelling and soliciting sales door to door or at fairs, shows or special events, you are considered an itinerant seller. You must calculate the tax based upon the tax rate at the location where your sales are made.
For more information, please see Regulation 1802, Place of Sale and Use for Purposes of Bradley-Burns Uniform Local Sales and Use Taxes.
Point of Sale Systems (POS)
To combat against the use of sales suppression devices or sales-hiding software, California law makes it a crime for anyone in California to purchase, install, or use any automated sales suppression device or software to misrepresent records. The use of this technology is estimated to cost California more than $200 million in sales tax revenue each year. Violators may face jail time as well as fines.