Sales tax does not apply to charges for services, unless the services are part of the sale of tangible personal property. Also, sales tax does not apply to charges for computer programs or other digital products that are transferred electronically if the purchaser does not obtain possession of any tangible personal property, such as storage media, in the transaction.

Use tax is imposed on consumers. When sales tax does not apply, use tax generally applies to the sales price of tangible personal property that was purchased from a retailer for storage, use, or other consumption in California and is actually stored, used, or otherwise consumed in the state. In general, if California sales tax would apply when tangible personal property is purchased from a retailer in California, then the California use tax would apply to a California consumer's purchase of the same merchandise from a retailer located outside California for delivery in California.

RTC section 6203 expressly provides that the term retailer engaged in business in this state "means any retailer that has substantial nexus with this state for purposes of the commerce clause of the United States Constitution" and this definition is also incorporated into Regulation 1684, Collection of Use Tax by Retailers.

Prior to South Dakota v. Wayfair, Inc., 585 U.S. (2018) (Wayfair), the U.S. Supreme Court had held in Quill Corp. v. North Dakota, 504 U.S. 298 (1992) (Quill) that a retailer does not have a substantial nexus with a state for purposes of the U.S. Constitution's Commerce Clause, unless it has a physical presence in the state. So, retailers with a physical presence in this state are generally required to collect and remit the use tax. Examples of a physical presence in California include having a warehouse, an office, or a sample room in California, or any agent, representative or salesperson operating in California under the retailers' authority to sell, deliver, or install tangible personal property. Wayfair does not affect the collection requirements for retailers that were already required to collect the state use tax. If you were already required to be registered to collect California use tax, there will be no change in your registration obligations as a result of the recent Wayfair decision.

In the Wayfair decision, the U.S. Supreme Court considered a South Dakota law requiring a seller to collect South Dakota sales tax if during the previous or current calendar year the seller's gross revenue from sales into South Dakota exceeded $100,000 or the seller made sales into South Dakota in 200 or more separate transactions. In upholding the South Dakota law, the Court overruled Quill's physical presence requirement for substantial nexus and held that the amount of sales required by the South Dakota law is sufficient to establish a substantial nexus with a state. Accordingly, CDTFA determined that any retailer whose sales into California created a substantial nexus with California based on the sales thresholds upheld in the Wayfair decision was a retailer engaged in business in the state for purposes of RTC section 6203 and Regulation 1684. CDTFA also issued a special notice in December 2018, which required such retailers to register and collect California state use tax on their sales on and after April 1, 2019, regardless of whether they had a physical presence in California (see Special Notice L-565).

AB 147 was enacted by the California Legislature to modernize California law consistent with the holding of Wayfair. AB 147 amended RTC section 6203, operative April 1, 2019, to provide that a retailer engaged in business in this state also includes any retailer that, in the preceding or current calendar year has total combined sales of tangible personal property for delivery in this state by the retailer and all persons related to the retailer that exceed $500,000. For purposes of amended RTC section 6203, a person is related to another person if both persons are related to each other pursuant to section 267(b) of the Internal Revenue Code and the regulations thereunder.

Accordingly, operative April 1, 2019, any retailer whose sales of tangible personal property for delivery in California meet the $500,000 sales threshold in the preceding or current calendar year is a retailer engaged in business in the state. As such, these retailers are required to register with CDTFA, collect California state use tax, and report and pay the tax to CDTFA. These retailers include remote sellers located outside of California that sell tangible goods for delivery into California through the Internet, mail-order catalogs, telephone, or by any other means.

Retailers engaged in business in the state, as defined in RTC section 6203, are required to collect local use tax pursuant to RTC section 7202 and section 7203 and remit it to CDTFA so it can be distributed to the appropriate local jurisdictions. Accordingly, any retailer engaged in business in this state pursuant to RTC section 6203 as amended by AB 147, operative April 1, 2019, will have the same local tax collection obligation as any other retailer engaged in business in California. AB 147 does not affect the allocation of local sales and use tax or the collection requirements for retailers that were already required to collect local use tax.

For more information about allocating local use tax, visit our Local and District Tax Guide for Retailers.

Note: If you are an online retailer, you are required to collect, report, and pay tax like other retailers, but how you allocate your internet transactions can depend on several factors. More specific information on local tax reporting requirements for online retailers is available on the Online Retailers: Registration and Local Tax tab of our Local and District Tax Guide for Retailers.

Unlike with local taxes, only retailers engaged in business in a taxing district are required to collect that district's use tax on their sales for delivery into the district and remit it to CDTFA so it can be distributed to the taxing district. This is because RTC section 7262 requires district use tax ordinances to incorporate the provisions of RTC section 6203 requiring retailers engaged in business in the state to collect the use tax, and also requires the name of the taxing district to be substituted for the word "state" in the phrase "retailer engaged in business in this state" and in the definition of that phrase.

Prior to the Wayfair decision and AB 147, a retailer was engaged in business in a district if its business was located in the district or if it had some other form of physical presence in the district, for example, if the retailer:

• Maintains, occupies, or uses any type of office, sales room, warehouse, or other place of business in the district, whether the use is temporary or permanent, direct or indirect, or through an agent,
• Has any representative, agent, salesperson, canvasser, etc., operating in the district for the purpose of taking orders, making sales or deliveries, installing, or assembling tangible personal property,
• Receives rentals from a lease of tangible personal property located in the district, or
• Sells or leases vehicles or undocumented vessels which will be registered in the district.

In 2018, CDTFA determined that any retailer whose sales into a taxing district exceeded the sales thresholds upheld in the Wayfair decision was a retailer engaged in business in the district for purposes of RTC section 7262.

AB 147 amended RTC section 7262 to provide that a retailer engaged in business in a district includes any retailer that, in the preceding or the 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 persons related to the retailer that exceed $500,000. Accordingly, beginning April 25, 2019 (the date AB 147 was signed into law), any retailer required to be registered with CDTFA, whether located inside or outside of California that meets the $500,000 threshold in RTC section 7262 is engaged business in every district in the state, whether or not they have a physical presence in those districts. 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.

For more information about reporting district use tax, visit our Local and District Tax Guide for Retailers.

Example 1 – Remote seller required to register with CDTFA:

You are a remote seller whose sales of tangible personal property for delivery in California exceeded $500,000 during calendar year 2018. Therefore, you are required to register with CDTFA and collect use tax on your sales of tangible personal property to your California customers on and after April 1, 2019. You are required to collect use tax at the 7.25 percent statewide rate, and on and after April 25, 2019, the rate of any district use tax when you make a taxable retail sale to a customer located in a district that imposes a district tax.

Example 2 – Retailer with a retail location in California and registered with CDTFA

You are a retailer located inside California with a single retail location in Los Angeles County, but not in a city that imposes a district tax. Most of your sales are made at your Los Angeles location, but you occasionally ship merchandise by common carrier directly to your customers throughout California. During calendar year 2018, your total sales of merchandise at your Los Angeles location and for delivery directly to your customers throughout California exceeded $500,000. You do not have any physical presence in other cities in Los Angeles County or to districts outside of Los Angeles County other than by shipping merchandise via common carrier to your customers. You collect the Los Angeles County and Los Angeles County MTA district transactions (sales) taxes on all sales made at your location.

For your sales prior to April 25, 2019, you were not considered engaged in business in any cities imposing a district tax or in any districts outside of Los Angeles County and you were not required to collect any district use tax on sales delivered to your customers in other districts.

However, beginning April 25, 2019, you are a retailer engaged in business in all districts in California pursuant to RTC section 7262. As such, in addition to the statewide tax rate of 7.25 percent, you are required to collect the applicable district use tax on all your taxable retail sales.

Example 3 – California retailer making sales in interstate commerce

You are a retailer located in the city of San Ramon in Contra Costa County. Most of your sales are over-the-counter sales made at your San Ramon location, but you also ship merchandise by common carrier directly to your customers both inside and outside of California. During Calendar year 2018, your sales of merchandise picked up by customers at your San Ramon location totaled $300,000, and for shipment by common carrier from San Ramon directly to your customers in California totaled $50,000 with an additional $200,000 shipped to customers outside of California. You do not have any physical presence in any other California location and you collect the Contra Costa County district transactions (sales) taxes on all sales picked up at your location or shipped within Contra Costa County.

For your sales prior to April 25, 2019, you were only responsible for the countywide rate of Contra Costa County because San Ramon did not have a district tax and you were not required to collect any district use tax on sales delivered to your customers outside of Contra Costa County or to other cities within Contra Costa County that imposed citywide district taxes.

However, beginning April 25, 2019, you may be considered a retailer engaged in business in all districts in California if your total combined sales of tangible personal property in this state or for delivery in the state by you and all persons related to the you exceed $500,000 threshold. Based on the given scenario, you have $350,000 worth of sales delivered in the state ($300,000 + $50,000), but whether the sales shipped to customers outside California are sales made in this state will need to be determined. In determining the place of sale, you must first determine if there is a title clause. Unless such a title clause passes title sooner, title passes and the sale occurs when the seller completes its duties with respect to physical delivery of the property (Cal UCC 2401). This means when you provide property to a common carrier for shipment the sale generally occurs at the time and place of shipment, e.g. delivery of the property to the carrier for delivery by the carrier to the purchaser, unless there is an FOB destination clause making it so you do not complete your duties with respect to physical delivery until the property is delivered at destination. When there is no FOB destination clause, the sale generally occurs in this state and would be included in the calculation of whether you meet the $500,000 threshold. If your sales contracts do not include an FOB destination provision, and the sales you have shipped outside California are therefore generally included in the threshold calculation, you would be considered a retailer engaged in business in all California districts in which you ship merchandise. You would be required to collect applicable district use tax(es) on sales shipped to California customers. For sales made to other jurisdictions in Contra Costa County, you would need to continue to collect the county transactions taxes and any citywide district use tax.

For more information about California city and county sales and use tax rates and to verify current tax rates, visit our California City & County Sales & Use Tax Rates webpage. You can also look up the tax rate by address using the Find a Sales and Use Tax Rate by Address tool.

Our rate look-up service may also be integrated into your sales software to compute the tax rate for each of your sales. To determine if our service will operate with your application, please select the Looking for the Tax Rate API link at the bottom of the rate look-up tool page.

If you are not required to register with CDTFA, as a courtesy to your California customers, you may choose to register with CDTFA and collect the state, local, and district use tax from them and report and pay it to CDTFA.

Purchase discounts are generally given to the retailer by a manufacturer or wholesaler based on the amount of purchases the retailer made from the manufacturer or wholesaler. Purchase discounts a manufacturer or wholesaler gives to a retailer are not subject to tax since they are trade discounts tied to the retailer's purchases of products, and not rebates tied to retail sales made by the retailer (discussed in separate topic, Manufacturer discounts and coupons).

For these types of cash and purchase discounts, retailers should compute the tax on the sales price after applying the discounts.

References: RTC section 6011, RTC section 6012, and publication 113, Coupons, Discounts and Rebates

Reference: Regulation 1502, Computers, Programs, and Data Processing

Tax does not apply to custom programming services performed in connection with the sale or lease of computer equipment. However, charges for custom modifications to canned or non-custom programs are nontaxable only if the charges for the modifications are separately stated or the modifications are so significant that the new program qualifies as a custom program.

References: RTC section 6010.9 and Regulation 1502, Computers, Programs, and Data Processing

However, tax does not apply to license fees or royalty payments that are made for the right to reproduce or copy a copyrighted program in order for the program to be published and distributed for a consideration to third parties, even if a tangible copy of the program is transferred concurrently with the granting of such right. Any storage media used to transmit the program is merely incidental.

Reference: Regulation 1502, Computers, Programs, and Data Processing

Tax does not apply to the sale or use of the following types of containers:

• Nonreturnable containers when sold or leased without the contents to persons who place the contents in the container and sell the contents together with the container.
• Nonreturnable containers when sold without the contents to persons who place food products for human consumption in the containers for subsequent sale.
• Returnable containers when sold with the contents in connection with a retail sale of the contents, or when resold for refilling.
• All containers when sold or leased with the contents, if the sales price of the contents is not subject to tax.
• All containers when sold or leased without the contents to persons who place food products for human consumption in the containers for shipment, provided the food products will be sold.
• Any container used to collect or store human whole blood, plasma, blood products, or blood derivatives held for medical purposes, including but not limited to, blood collection units and blood pack units (discussed in separate topic, Blood storage units).

References: RTC section 6364, RTC section 6364.5, and Regulation 1589, Containers and Labels

References: RTC section 6011 and RTC section 6012

In general, charges for producing, fabricating, processing, assembling, printing, or imprinting tangible personal property for a consideration for consumers who furnish either directly or indirectly the materials used in the producing, fabricating, processing printing, or imprinting are subject to tax.

References: RTC section 6006, RTC section 6010, and Regulation 1526, Producing, Fabricating and Processing Property Furnished by Consumers—General Rules

However, if nonfood products, such as wine, glassware, or decorative items, are included with food products in a "combination package," the application of tax depends upon the essential character of the complete package.

If you purchase the individual items that you use to assemble a combination package that you will sell, you are required to separate the retail value of the nonfood products in the combination package when:

• You have records that verify the cost of the individual items in the package, and
• The retail price of the nonfood products is more than 10 percent of the retail value of the entire package, not including the container.

Tax is due on the retail selling price of the nonfood items sold in the combination package, not including the value of the container (for example, a basket, gift box, etc.).

However, if you do not have records to verify the cost of the individual items in the combination package (for example, you purchase the combination package preassembled from your supplier), then tax is due on the retail selling price of the entire combination package, including the value of the container if:

• The retail value of the nonfood product exceeds 10 percent of the retail price of the entire package (excluding the container), and
• You do not have records to establish the cost of the individual items in the combination package.

And lastly, if you do not have records to verify the cost of the individual items, tax does not apply to the selling price of the combination package if

• The retail value of the nonfood products is 10 percent or less of the total retail value of the contents (not including the container), and
• The container's retail value is 50 percent or less of the retail value of the entire package.

Please see publication 106, Combination Packaging and Gift-Wrapping, under the Combination Packages section for illustrative examples of each of the scenarios described above.

References: Regulation 1602, Food Products and publication 106, Combination Packaging and Gift-Wrapping

References: RTC section 6011, RTC section 6012, and Regulation 1546, Installing, Repairing, Reconditioning in General.

A lease of tangible personal property is considered a "sale" and "purchase" except a lease of:

• Motion pictures, including television, films, and video tapes.
• Linen supplies and similar articles (i.e., towels, uniforms, caps and gowns) when an essential part of the lease includes the furnishing of the recurring service of laundering or cleaning the leased articles.
• Household furnishings leased with the living quarters (real property) in which they are to be used; the lessor of furnishings and living quarters must be the same.
• Mobile transportation equipment for use in transportation of persons or property (see Regulation 1661, Leases of Mobile Transportation Equipment).
• Tangible personal property leased in substantially the same form as acquired by the lessor or leased in substantially the same form as acquired by a transferor which the lessor or his/her transferor acquired in a transaction that was a retail sale and upon which the lessor or transferor paid sales tax reimbursement or timely paid use tax measured by the purchase price of the property.

In the case of a lease that is a "sale" or "purchase" the measure of tax is the rentals payable. Generally, the applicable tax is a use tax upon the use of the leased property in California by the lessee and the lessor is responsible for collecting the use tax from the lessee.

References: RTC section 6006, RTC section 6006.3, RTC section 6010, RTC section 6023, Regulation 1660, Leases of Tangible Personal Property—in General, and Regulation 1661, Leases of Mobile Transportation Equipment

Charges for a mandatory warranty or maintenance contract are included in the amount subject to tax when a mandatory warranty or maintenance contract is sold with a product that is subject to tax.

The parts used by the retailer in the performance of a mandatory warranty or maintenance contract may be purchased for resale.

References: Regulation 1502, Computers, Programs, and Data Processing, Regulation 1546, Installing, Repairing, Reconditioning in General, and publication 119, Warranties and Maintenance Agreements

In general, a separately stated charge for an optional warranty or maintenance contract is not subject to tax.  The parts used by the retailer in the performance of the optional maintenance agreement are subject to use tax.

Exception: A single lump-sum charge for an optional maintenance contract sold with the sale or lease of canned or non-custom programs recorded on tangible storage media is 50 percent taxable.

However, if no tangible personal property is transferred to the customer during the maintenance contract period, such as a disk containing an update, the charge for the maintenance contract is not subject to tax.

References: Regulation 1502, Computers, Programs, and Data Processing, Regulation 1546, Installing, Repairing, Reconditioning in General, and publication 119, Warranties and Maintenance Agreements

However, if as a retailer you offer your customer a discount (such as a paper or paperless coupon) on the regular selling price of a product and you do not receive any compensation from a third-party for the discount, the discount is not part of your selling price or the measure of tax and tax does not apply to the discount.

References: RTC section 6011, RTC section 6012, Regulation 1671.1, Discounts, Coupons, Rebates, and Other Incentives and publication 113, Coupons, Discounts and Rebates

Newspaper defined: For purposes of sales and use tax, the term "newspaper" is limited to those publications which are commonly understood to be newspapers and which are printed and distributed periodically at daily, weekly, or other short intervals for the dissemination of news of a general character and of a general interest. Newspaper does not include handbills, circulars, flyers, etc., unless distributed as part of a newspaper. Newspaper also does not include any publication which is issued to supply information on certain subjects of interest to particular groups, unless the publication otherwise qualifies as a newspaper. Advertising is not considered to be news of a general character and of a general interest.

Periodical defined: For purposes of sales and use tax, the term "periodical" is limited to those publications which appear at stated intervals, each issue of which contains news or information of general interest to the public, or to some particular organization or group of persons. Each issue must bear a relationship to prior or subsequent issues in respect to continuity of literary character or similarity of subject matter, and there must be some connection between the different issues of the series in the nature of the articles appearing in them. Each issue must be sufficiently similar in style and format to make it evident that it is one of a series. The term periodical does not include books complete in themselves, even those that are issued at stated intervals, for example books sold by the Book-of-the-Month Club or similar organizations; or "one-shot" magazines that have no literary or subject matter connection or continuity between prior or subsequent issues. Periodical does not include catalogs, programs, score-cards, handbills, price lists, order forms, maps, or shopping guides or other publications of which the advertising portion, including product publicity, exceeds 90 percent of the printed area of the entire issue in more than one-half of the issues during a 12-month period.

Exempt subscriptions: Tax does not apply to the sale or use of a printed periodical, including a newspaper, which appears at least four, but not more than 60 times each year, which is sold by subscription and which is delivered by mail or common carrier.

Print-only newspaper subscription (appears 60 or more times a year): Tax applies to charges for the sale of print-only newspaper subscriptions without access to digital content.

Digital-only newspaper subscriptions: Tax does not apply to charges that are solely for the right to access digital content, including digital-only newspaper subscriptions.

Mixed print and digital newspaper subscriptions (appear 60 or more times a year): Forty-seven (47) percent of the charge for a mixed print and digital subscription is presumed to be the taxable charge for the printed newspapers. This presumption is rebuttable.

Distributions without charge: Tax does not apply to the distribution without charge of newspapers and periodicals regularly issued at average intervals not exceeding three months and tax does not apply to the sale or use of tangible personal property which becomes an ingredient or component part of such a newspaper or periodical that is distributed without charge.

Nonprofit organizations: Tax does not apply to the sale or use of any newspaper or periodical distributed by an organization that qualifies for tax exempt status under section 501(c)(3) of the Internal Revenue Code or governmental entity established and administered for the purposes provided in section 501(c)(3), which is regularly issued at average intervals not exceeding three months and tangible personal property which becomes an ingredient or component part thereof, when:

• The issues are distributed to the organization's members in consideration of the organization's membership fee; or
• The issues are of a newspaper or periodical which neither receives revenue from, nor accepts, any commercial advertising.

Other Nonprofit Organizations (non IRC section 501(c)(3)): Tax does not apply to the sale or use of any newspaper or periodical regularly issued at average intervals not exceeding three months and distributed by a nonprofit organization, or tangible personal property which becomes an ingredient or component part thereof, when the issues are distributed pursuant to both of the following requirements:

• The issues are distributed to the organization's members in consideration, in whole, or in part, of the organization's membership fee, and
• The amount paid or incurred by the nonprofit organization for the cost of printing the newspaper or periodical is less than 10 percent of the membership fee attributable to the period for which the newspaper or periodical is distributed, whether the publication is printed within or without this state.

References: RTC section 6362.7, RTC section 6362.8, and Regulation 1590, Newspapers and Periodicals

Rebates and incentives are part of the retailer's taxable measure when the following three conditions are met:

• The third party requires the retailer to reduce the sales price of a particular product in order to receive the payment from the third party.
• The conditions to receive the payment from the third party must be certain and not dependent on other factors outside of the retailer's control, such as a condition for the retailer to place product signs in its store. However, a condition for the retailer to meet certain sales quotas for the discounted product would be outside of the retailer's control.
• The payment must be for a like amount on a transaction-by-transaction basis (payment must be tied to the specific sale of the particular product in the agreement). The third party reimburses you for the specified price reduction in the agreement.

Rebates that are issued by the manufacturer or other third party directly to the customer following the purchase of certain products from a retailer are not part of the retailer's measure of tax.

References: RTC section 6011, RTC section 6012, Regulation 1671.1, Discounts, Coupons, Rebates, and Other Incentives, and publication 113, Coupons, Discounts and Rebates

Reference: Regulation 1546, Installing, Repairing, Reconditioning in General

However, if the retail value of the parts and materials furnished in connection with repair work is more than 10 percent of the total charge, or if the repairman makes a separate charge for such property, the repairman is the retailer and tax applies to the fair retail selling price of the property.

Reference: Regulation 1546, Installing, Repairing, Reconditioning in General

Storage and use do not include a purchase for resale in the regular course of business. Sellers making sales for resale are relieved of the liability for sales tax and the duty to collect use tax on their sales if they take, in good faith, a timely resale certificate from a purchaser who is engaged in the business of selling tangible personal property and who holds a seller's permit. The resale certificate must be in the proper form and contain all of the essential elements pursuant to subdivision (b)(1) of Regulation 1668, Sales For Resale. See also publication 103, Sales for Resale.

References: RTC section 6008, RTC section 6009, RTC section 6091, and Regulation 1668, Sales For Resale

Amounts refunded to a purchaser are not part of the measure of tax if:

• The retailer refunds the full sale price of the property, including any amount designated as tax, either in cash or credit to the customer, and
• The customer is not required to purchase other property at a greater price than the amount charged for the returned property.

A retailer may withhold from the refund amount an amount for rehandling and restocking costs; however, the amount withheld must not exceed the actual cost of rehandling and restocking the returned merchandise.

A retailer may claim a deduction on their sales and use tax return for returned merchandise that was previously reported as taxable if the requirements above are satisfied.

References: RTC section 6011, RTC section 6012, and Regulation 1655, Returns, Defects and Replacements

References: RTC section 6011, RTC section 6012, and Regulation 1501, Service Enterprises Generally

References: RTC section 6011, RTC section 6012, and Regulation 1501, Service Enterprises Generally

However, tax does not apply to transportation charges to the purchaser when 1) the transportation charges are separately stated, 2) the transportation is from the retailer's place of business or other shipment point directly to the purchaser, and 3) the transportation occurs after the sale of the property is made to the purchaser (that is, the sale occurs before the transportation to the purchaser commences). Also, the amount that may be excluded from tax cannot exceed a reasonable charge for transportation by facilities of the retailer.

When the sale occurs

In general, unless explicitly agreed that title is to pass at a prior time, the sale occurs at the time and place at which the retailer completes his/her performance with reference to the physical delivery of the product, even though a document of title is to be delivered at a different time or place.

When delivery of the property is by facilities of the retailer, title passes when the property is delivered to the purchaser at the destination (that is, the sale occurs after the transportation), unless there is an explicit written agreement executed prior to the delivery that title is to pass at some other time.

References: RTC section 6011, RTC section 6012, and Regulation 1628, Transportation Charges

References: RTC section 6011, RTC section 6012, and Regulation 1628, Transportation Charges

Property is sold for a delivered price when the price of the property agreed upon in the contract for sale includes whatever cost or charge may be made for transportation of the property directly to the purchaser. However, property is not sold for a delivered price when the price is agreed upon and to this price is added a separately stated amount representing the cost or charge for transportation of the property directly to the purchaser and any increase or decrease in the actual transportation cost is borne by or credited to the purchaser.

However, tax does not apply to transportation charges to the purchaser when 1) the transportation charges are separately stated, 2) the transportation is from the retailer's place of business or other shipment point is made directly to the purchaser, and 3) the transportation occurs after the sale of the property is made to the purchaser (i.e., the sale occurs before the transportation to the purchaser commences). Also, the amount that may be excluded from tax cannot exceed the cost of transportation.

When the sale occurs

In general, unless explicitly agreed that title is to pass at a prior time, the sale occurs at the time and place at which the retailer completes his/her performance with reference to the physical delivery of the product, even though a document of title is to be delivered at a different time or place.

References: RTC section 6011, RTC section 6012, and Regulation 1628, Transportation Charges

References: RTC section 6358, Regulation 1587, Animal Life, Feed, Drugs and Medicines, and Regulation 1588, Seeds, Plants and Fertilizer

Reference: RTC section 6364.5

Reference: RTC section 6360.1

However, there is an exemption for drugs or medicines, including oxygen, the primary purpose of which is the prevention or control of disease, that are administered to animal life the products of which ordinarily constitute food for human consumption.

References: RTC section 6018.1 and RTC section 6358

Exempt food products include, but are not limited to cereal, meat and meat products, fish and fish products, eggs and egg products, vegetables, fruit, spices, salt, sugar, candy, gum, coffee, tea, milk and milk products, fruit or vegetable juices, and bottled water.

The exemption for food products does not apply when food products are sold as hot prepared food products. Also, exempt food products do not include, for example, alcoholic beverages, carbonated beverages, effervescent bottled water, mineral oils, or dietary supplements.

References: RTC section 6359, Regulation 1602, Food Products, and Regulation 1603, Taxable Sales of Food Products

Reference: RTC section 6409

Reference: RTC section 6371

Sales of medicines are exempt from tax when the medicine is:

• Prescribed for treatment of a human being by a person authorized to prescribe the medicine and dispensed on prescription by a registered pharmacist,
• Furnished by a licensed physician and surgeon, podiatrist, or dentist to a patient for treatment,
• Furnished by a health facility (as defined in Health and Safety Code section 1250), including a clinic (as defined in Health and Safety Code section 1200) for treatment of a person pursuant to the order of a licensed physician and surgeon, dentist, or podiatrist,
• Sold to a licensed physician and surgeon, podiatrist, dentist, or health facility (as defined in section 1250), including a clinic (as defined in section 1200) for the treatment of a human being.
• Sold to this state or any political subdivision or municipal corporation thereof, for use in the treatment of a human being,
• Furnished without charge by a pharmaceutical manufacturer or distributor to a licensed physician, surgeon, dentist, podiatrist, or a health facility (as defined in section 1250), including a clinic (as defined in section 1200), for the treatment of a human being, or to an institution of higher education for instruction or research if such medicine can only be dispensed for the treatment of a human being and pursuant to a prescription issued by a person authorized to prescribe medicines, or
• Furnished for the treatment of a human being by a medical facility or clinic maintained by this state or any political subdivision or municipal corporation.

References: RTC section 6369 and Regulation 1591, Medicines and Medical Devices

References: RTC section 6018  and Regulation 1592, Eyeglasses and Other Ophthalmic Materials

Tax does not apply to the retail sale or use of printed sales messages which are:

• Printed to the special order of the purchaser;
• Mailed or delivered by the seller, the seller's agent or a mailing house acting as the agent for the purchaser, through the United States Postal Service or by common carrier.
• Received by any person other than the purchaser at no cost to that person who becomes the owner of the material.

If the above conditions are not met, tax applies to retail sales of the printed material.

References: RTC section 6379.5 and Regulation 1541.5, Printed Sales Messages

References: RTC section 6369.4 and Regulation 1591.3, Vehicles for Physically Handicapped Persons

References: RTC section 6369.2 and Regulation 1591.2, Wheelchairs, Crutches, Canes, and Walkers

The partial exemption from tax applies when the farm equipment and machinery is:

• Sold to a qualified person (see below).
• Used exclusively or primarily (50 percent or more of the time) in producing and harvesting agricultural products.
• Qualified property (see below).

Qualified person

A qualified person, for purposes of the partial exemption, is one whose business falls within the specified Standard Industrial Classification (SIC) Codes listed below:

• Ranchers, farmers and other growers who operate businesses described in SIC Codes 0111 to 0291.
• A person who assists a qualified rancher, farmer, or grower by performing a service described in SIC Codes 0711 to 0783.

Qualified property

Farm equipment and machinery for purposes of the partial exemption means implements of husbandry:

• Implements of husbandry include any new or used tool, machine, equipment, appliance, device or apparatus used in the conduct of agricultural operations, except where such items are intended for sale in the ordinary course of business.
• Such items include, but are not limited to, combines, harrows, tractor implements, agricultural heating and cooling equipment, fuel storage equipment, wind machines, handling and packing equipment and conveyors, ginning equipment, feeding, watering and waste disposal systems for livestock, incubators and equipment used for egg and poultry production, harvesting trays and bins, farm tools such as rakes and hoes, plant support equipment such as trellis systems, irrigation systems, fencing systems, milking systems, agricultural operating structures, squeeze chutes, portable panels, corrals, loading chutes, veterinary instruments, free stalls, cages and tack items such as saddles and rope.
• Implements of husbandry also include any new or used vehicle, which is used exclusively in the conduct of agricultural operations, such as farm tractor, but do not include a vehicle whose existing design is primarily for the transportation of persons or property on a highway, unless such vehicle is otherwise specified as an implement of husbandry in the Vehicle Code.

For more explanation about what qualifies as farm equipment and machinery, see Regulation 1533.1, Farm Equipment and Machinery.

References: RTC section 6356.5, and Regulation 1533.1, Farm Equipment and Machinery

To be eligible for the partial exemption, a person must meet all three of the following conditions:

• Be primarily engaged in certain types of businesses, also known as a "qualified person,"
• Purchase "qualified tangible personal property," and
• Use the qualified tangible personal property in a "qualified manner."

The current partial exemption rate is 3.9375 percent. That means the sale of qualifying property sold to a qualified person should be taxed at a rate of 3.3125 percent (7.25 percent current statewide rate – 3.9375), plus any applicable district taxes. You can lookup tax rates by city, county, or address on our webpage, California City & County Sales & Use Tax Rates.

Qualified person

Currently, a qualified person means a person who is primarily engaged (50 percent or more of the time) in those lines of business described in Codes 3111 to 3399, inclusive, 221111 to 221118, inclusive, 221122, 541711, or 541712 of the North American Industry Classification System (NAICS) published by the U.S. Office of Management and Budget, 2012 edition.

The businesses in the above specified NAICS codes include manufacturing, research and development, and electric power generation or storage and distribution.

A "qualified person" generally does not include:

• An apportioning trade or business that is required to apportion its business income pursuant to subdivision (b) of RTC section 25128, or
• A trade or business conducted wholly within this state that would be required to apportion its business income pursuant to subdivision (b) of RTC section 25128 if it were subject to apportionment pursuant to RTC section 25101.

However, currently, the above exclusions from the definition of "qualified person" do not apply to an agricultural trade or business.

Qualified tangible personal property

In general, qualified tangible personal property currently includes:

• Machinery and equipment,
• Equipment or devices used or required to operate, control, regulate, or maintain the machinery together with all repair and replacement parts with a useful life or one or more years,
• Specified tangible personal property used in pollution control,
• Special purpose buildings and foundations used as an integral part of the manufacturing, processing, refining, fabricating, or recycling process, or that constitute a research or storage facility used during those process, and
• Special purpose buildings and foundations used as an integral part of the generation or production or storage and distribution of electric power.

Qualified tangible personal property must generally be treated as having a useful life of one or more years for state income or franchise tax purposes. Qualified tangible personal property does not include furniture, inventory, and equipment used in the extraction process, or equipment used to store finished products that have completed the manufacturing, processing, refining, fabricating, or recycling process, or tangible personal property used primarily in administration, general management, or marketing.

Qualified uses

Qualified uses include the use of qualified tangible personal property primarily (50 percent or more of the time) in one of the following:

• Any stage of the manufacturing, processing, refining, fabricating or recycling of tangible personal property, or
• Research and development, or
• To maintain, repair, measure, or test any qualified tangible personal property described by the above, or
• The generation or production or storage and distribution of electric power, or
• Purchased for use by a contractor purchasing that property for use in the performance of a construction contract for a qualified person provided that the qualified person will use the resulting improvement to real property as an integral part of the manufacturing, processing, refining, fabricating, or recycling process, the generation or production, or storage and distribution, of electric power, or as a research or storage facility for use in connection with those processes.

Qualified persons that make a qualifying purchase or lease must provide the seller with a partial exemption certificate in order for the seller to claim the partial exemption on their sales and use tax return.

Sellers, including out-of-state retailers, who make sales subject to the partial tax exemption, must obtain a timely exemption certificate from their customer to document a partially exempt sale or lease to a qualified person. An exemption certificate is considered timely if it is taken any time before the seller bills the purchaser for the property, any time within the seller's normal billing or payment cycle, or any time at or prior to delivery of the property to the purchaser.

There are two sample certificates available on our website to document the partial exemption:

• Form CDTFA-230 M, Partial Exemption Certificate for Manufacturing and Research and Development Equipment,
• Form CDTFA-230 MC, Construction Contractors – Partial Exemption Certificate for Manufacturing, Research and Development Equipment.

Any document may be regarded as a partial exemption certificate as long as it contains the following:

• The signature of the purchaser, the purchaser's agent, or the purchaser's employee,
• The name address, and telephone number of the purchaser,
• The purchaser's seller's permit number, or if the purchaser is not required to hold a seller's permit, a notation to that effect and the reason,
• A statement that the property purchased is:
  • To be used primarily for a qualifying activity, or
  • For use by a contractor performing a construction contract for a qualified person.
• A statement that the purchaser is:
  • A qualified person primarily engaged in a qualifying line of business, or
  • A contractor performing a construction contract for a qualified person.
• A statement that the property purchased is qualified tangible personal property,
• A description of the property purchased,
• The date of execution of the document.

For more information, see our online guide, Tax Guide for Manufacturing and Research & Development Equipment Exemption

References: RTC section 6377.1 and Regulation 1525.4, Manufacturing and Research & Development Equipment

These products include computer monitors, laptops, portable DVD players with LCD screens, "bare" cathode ray tubes (CRTs) and devices containing CRTs, televisions with LCD screens, plasma screens, or CRTs. The eWaste fee rate is variable and is determined by the screen size. You may find the fee rates on our website on the Tax Rates – Special Taxes and Fees page, and select Electronic Waste Recycling Fee.

Retailers responsible for collecting the eWaste fee on their sales of CEDs are required to register for an eWaste Recycling Fee account in addition to registering for a seller's permit or Certificate of Registration-Use Tax.

For more information, please see our Covered Electronic Waste Recycling Fee.

References: (Public Resources Code (PRC) 42460-42486)

California Battery Fee

A California Battery Fee of one dollar ($1.00) through March 31, 2022, and two dollars ($2.00) on and after April 1, 2022, is imposed on the purchase of a replacement lead-acid battery at retail for specified uses. A dealer/retailer is required to charge and collect the fee on the retail sale of a replacement lead-acid battery to a purchaser in California.

For purposes of the lead-aid battery fees, a "lead-acid battery" is a battery weighing more than five kilograms (about 11 pounds) that is primarily composed of both lead and sulfuric acid (liquid, solid, or gel) with a capacity of six or more volts used for any of the following purposes:

• As a starting battery that is designed to deliver a high burst of energy to an internal combustion engine until it starts,
• As a motive power battery that is designed to provide the source of power for propulsion or operation of a vehicle, including a watercraft,
• As a stationary storage or standby battery that is designed to be used in systems where the battery acts as electrical storage for electricity generation equipment or a source of emergency power or otherwise serves as a backup in case of failure or interruption in the flow of power from the primary source, or
• A source of auxiliary power to support the electrical systems in a vehicle (as defined in Vehicle Code section 670 and section 36000) or an aircraft.

A replacement "lead-acid battery" is a new lead-acid battery sold at retail after the original sale or lease of the vehicle, equipment, watercraft, or aircraft in which the lease-acid battery is intended to be used. The California battery fee only applies to replacement lead-acid batteries used for purposes 1, 2, or 4 (above).

A dealer/retailer responsible for collecting the lead-acid battery fee is required to register for a California Battery Fee account in addition registering for a seller's permit or Certificate of Registration – Use Tax.

Manufacturer Battery Fee

A Manufacturer Battery Fee of one dollar ($1.00) is imposed on a manufacturer for each lead-acid battery  (as defined above) it sells at retail to a person in California, or sells to a dealer, wholesaler, distributor, or other person for retail sale in California.

In general, the manufacturer of a lead-acid battery is the person who manufactures a lead-acid battery and who sells, offers for sale, or distributes the lead-acid battery in the state. However, if there is no person that meets that description who is subject to the jurisdiction of this state, the manufacturer is the person who imports the lead-acid battery into the state for sale or distribution.

A manufacturer is required to register for a Manufacturer Battery Fee account, and pay the manufacturer battery fee to CDTFA.

A manufacturer who makes retail sales of lead-acid batteries directly to consumers in California is also a dealer/retailer and required to register for a California Battery Fee account in addition to registering for a seller's permit or a Certificate of Registration – Use Tax.

For more information, see our online Tax Guide for Lead-Acid Battery Fees.

References: Health and Safety Code 25215-25215.75

In general, lumber products and engineered wood products subject to the one percent lumber products assessment are building products, usually used in construction, which are comprised of at least 10% wood.

Retailers responsible for collecting the one percent lumber products assessment on sales of lumber products or engineered wood products are required to register for a Lumber Assessment account in addition to registering for a seller's permit or Certificate of Registration-Use Tax.

For more information, please see our online Tax Guide for California Lumber Products Assessment.

Reference: PRC 4629-4629.13

In addition, a lessor of new or used motor vehicles, trailers, farm equipment, or construction equipment that purchases vehicles or equipment on which new tires are mounted without paying the tire fee is required to collect and pay the fee to CDTFA.

Tires that are subject to the fee are new solid or pneumatic (that is, a tire inflated, or capable of inflation, with compressed air) tires that are intended for use with, but sold separately from:

• On-road, or off-road motor vehicles,
• Motorized equipment,
• Construction equipment, or
• Farm equipment.

Tires subject to the fee also include new tires, including the spare, that are sold with the purchase of:

• New or used motor vehicles,
• New or used trailers drawn upon a highway or road,
• New or used farm equipment, or
• New or used construction equipment.

Retreaded, reused, or recycled tires are not subject to the fee.

Retailers of new tires for use in California responsible for collecting the tire fee and lessors purchasing vehicles or equipment on which new tires are mounted without paying the tire fee are required to register for a California Tire Fee account in addition to registering for a seller's permit or Certificate of Registration-Use Tax.

For more information, please see our California Tire Fee webpage.

Reference: PRC 42860-42895

In general, California sales or use tax applies to all tangible personal property, such as personal property which may be seen, weighed, measured, felt, or touched, or which is in any other manner perceptible to the senses. Household items, appliances, electronics, clothes, shoes, books, computers, cell phones, personal care items, toys and games, arts and crafts, office supplies, tools, etc. are generally subject to tax.

Sales tax applies to the retail sales of tangible personal property made within California. Sales tax does not apply to charges for services unless the services are part of the sale of tangible personal property. When sales tax does not apply, use tax generally applies to the sales price of tangible personal property that was purchased from a retailer for storage, use, or other consumption in California and is actually stored, used, or otherwise consumed in the state. In general, if California sales tax would apply when tangible personal property is purchased from a retailer in California, then California use tax would apply to a California consumer's purchase of the same tangible personal property from a retailer located outside the state for delivery in California.

However, certain items are specifically exempt from tax by law. Examples of items exempt from tax include, but are not limited to the following:

• Food products for human consumption. However, some sales of food products, including sales of hot prepared food products, or food purchased for dine-in at a restaurant, are generally subject to tax.
• Animal life, feed for animal life, seeds, and plants the products of which are normally food for human consumption.
• Prescription medicines sold under specific circumstances (see Regulation 1591, Medicines and Medical Devices).

In addition, the following charges are not considered charges for tangible personal property, and therefore, are not subject to tax:

• Admission charges to amusement parks, theaters, sports events, golf courses, etc.
• Finance charges.
• Charges for real property.
• Charges for securities, such as stocks, bonds, and memberships in limited liability companies.
• Charges for services unless the services are part of the sale of tangible personal property.
• Charges for transportation, such as bus, airplane, or train tickets.

No, there is not a new tax on out-of-state retailers. AB 147 expands the registration and reporting requirements for retailers based outside of California. State, local and district use taxes are imposed on consumers. This includes consumers who purchase tangible personal property from out-of-state retailers. When an out-of-state retailer is not registered with CDTFA, their consumers are responsible for paying the use tax directly to the state.

If during the current or prior calendar year, you made sales of tangible personal property for delivery in California and the total sales price charged was greater than $500,000, you are required to register with CDTFA, and you are required to collect, report, and pay the state and local use tax due on your taxable sales made into California. Additionally, when you meet the threshold as described above, you are also considered engaged in business in all districts that impose a district tax and are required to collect the district use tax in addition to the state and local tax on your taxable sales for delivery in California.

You are considered to have met the $500,000 sales threshold based on your total sales of tangible personal property, which may include nontaxable sales, such as sales for resale.

Example – Remote seller makes taxable sales and sales for resale

You are located outside of California and do not have a physical presence in this state. During calendar year 2018, your sales for delivery into California totaled $600,000. Those sales included $300,000 of sales for resale to other retailers who will resell the tangible personal property in the regular course of their businesses and $300,000 of retail sales to consumers. Because your total sales for delivery in California in calendar year 2018 exceeded $500,000, you are considered engaged in business in this state and required to register with CDTFA. You are also required to collect, report, and pay the state, local, and district use tax due on your taxable retail sales of tangible personal property into California; your sales for resale are generally not subject to tax.

To document that your sales into California are nontaxable sales for resale, you must obtain a valid California resale certificate from your customer and keep it in your records. For more information, see publication 103, Sales for Resale.

Example 2 – Remote seller

You are located outside of California and prior to April 1, 2019, you were not a retailer engaged in business in this state. Your sales for delivery into California did not exceed $500,000. Therefore, since your sales in 2018 and the first three months of 2019 did not meet the $500,000 sales thresholds you are not required to register with CDTFA and begin collecting use tax as of April 1, 2019. However, if your sales later meet the threshold, you will need to register with CDTFA and collect, report, and pay tax at that point.

For example, if during 2019, your sales increased and by June 30, 2019, your sales for delivery in California totaled $499,000. In July 2019, you make the following sales for delivery in California:

• $500 on July 4, 2019
• $300 on July 6, 2019
• $400 on July 7, 2019

On July 7, 2019, your sales for delivery in California exceed $500,000 for 2019 ($499,000 + $500 + $300 + $400 = $500,200). You were required to register with CDTFA on July 7, 2019, and begin collecting the state, local, and district use taxes from your customers on your retail sales for delivery into California. You are not liable for collection of the use tax on sales delivered to California made prior to July 7, 2019, including the $400 transaction that put you over the $500,000 threshold. Your customers will remain liable for the payment of the use taxes on these transactions.

If you were considered engaged in business in California before April 1, 2019, then you may be liable for use taxes that you were required to collect, report, and pay to CDTFA on your sales made prior to April 1, 2019. CDTFA can assess a use tax liability up to eight years owed by a retailer that did not file a return. This assessment period may be reduced to three years if you qualify under our Voluntary Disclosure program. To find out more about this program and how to apply, visit the Out-of-State Voluntary Disclosure Program webpage.

Prior to April 1, 2019, the four most common ways you would be considered engaged in business in this state are listed below:

• You maintain, occupy, or use, 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 California.
• You have representatives, agents, or independent contractors operating in California on your behalf or under your authority, or under the authority of your subsidiary, for purposes of making sales, taking orders, assembling or installing merchandise, training customers, making deliveries, or otherwise establishing or maintaining a market for your products.
• You receive rental payments from the leases of tangible personal property located in California, such as leases of machinery, equipment, and furniture.
• You own or lease real property or personal property such as, machinery or equipment, furniture, or computer servers located in California.

Effective April 1, 2019, there is an additional common way you are considered engaged in business in this state:

• You have total combined sales of tangible personal property by you and all persons related to you for delivery in California exceeding $500,000 during the preceding or current calendar year.

For more information on the registration requirements, see our online Tax Guide for Out-of-State Retailers.

Beginning October 1, 2019, according to the Marketplace Facilitator Act, you will no longer be considered the retailer of your sales of tangible merchandise facilitated through a marketplace, provided the marketplace facilitator is registered or required to be registered for a seller's permit or Certificate of Registration – Use Tax.

The marketplace facilitator will be the retailer responsible for collecting, reporting, and paying the tax to CDTFA on those facilitated sales for delivery in California. However, if you make any direct sales of tangible personal property in California or for delivery in California you may have a registration requirement. That is, if you make any sales of tangible personal property that are not facilitated by a registered marketplace facilitator and are engaged in business in this state, you are required to register with CDTFA for a Certificate of Registration – Use Tax, to collect, report, and pay use tax from your customers.

For more information on the Marketplace Facilitator Act, please see our Tax Guide for the Marketplace Facilitator Act.

Yes. If you meet the $500,000 sales threshold, you have total combined sales of tangible personal property for delivery in California exceeding $500,000 during the preceding or current calendar year, you are required to register with CDTFA to collect, report, and pay the state, local, and district use taxes from your customers.

If you do not meet the $500,000 sales threshold in the prior or current calendar year and are not otherwise considered to be engaged in business in California, you are not required to register with CDTFA.

Please keep in mind that if you continue to make sales into California, and at a later date, meet the $500,000 sales threshold, you will be required to register with CDTFA and collect, report, and pay state, local, and district use taxes. You should keep records of your sales into California to document you do not meet the sales threshold.

No, you will not need to re-register if you are currently registered with CDTFA. You will remain registered with CDTFA. However, there may be changes in your obligation to collect, report, and pay district use tax.

No. You do not need to register with CDTFA to collect, report, and pay use tax if you do not make any retail sales for delivery in California and all your sales into California are sales for resale to other vendors and if these wholesalers and retailers will resell the property in the regular course of business.

However, if your sales for delivery into California exceed $500,000 during the preceding or current calendar year, and if you make any retail sale (a sale to a California consumer), you are then required to register with CDTFA and begin filing sales and use tax returns to report your total sales to customers in California. You will also be required to collect, report, and pay tax on your retail sales to customers in California. Your valid sales for resale to other retailers are not subject to tax and may be claimed as a deduction on your return. For information about your sales for resale and documentation to support your sales for resale, please see the next question.

No. Use tax does not apply to your sales of tangible personal property to a customer who will resell the product in the regular course of business. Therefore, you are not required to collect, report, and pay use tax on your sales to distributors who will resell the item in the regular course of business. You should maintain proper documentation to support that the sale was for resale, which is explained below.

To document that your sales into California are nontaxable sales for resale, you should obtain a signed resale certificate from your customer, the distributor or wholesaler. You may issue the resale certificate template (CDTFA-230) available on our website. However, a resale certificate may be any document, letter, purchase order, etc., but a resale certificate must contain the following information:

• The name and address of the purchaser's business.
• The purchaser's seller's permit number or an explanation stating why the purchaser is not required to hold a seller's permit.
• A description of the property to be purchased.
• A statement that the described property is being purchased for resale. The document must contain the phrase “for resale.” Phrases such as “nontaxable” or “exempt” are not acceptable.
• The signature of the purchaser, purchaser's employee, or authorized representative.
• The date of the document (an otherwise valid resale certificate will not be considered invalid solely because it is undated).

For more information, see publication 103, Sales for Resale.

Yes. If you are a retailer engaged in business in this state, including a retailer that meets the sales threshold (your total combined sales made into California exceed $500,000 during the preceding or current calendar year) and you deliver tangible personal property directly to a California consumer on behalf of an unregistered supplier or vendor, you are making a retail sale and are considered the retailer in the transaction. As such, you are responsible for collecting the tax from the California consumer and reporting and paying the tax to CDTFA.

These types of transactions are referred to as "drop shipments." Typically, drop shipment transactions involve a "true retailer," a "drop shipper," and one consumer:

• The true retailer is a retailer that is not engaged in business in this state and not registered with CDTFA and that sells a product to a consumer in California.
• The drop shipper sells the product to the true retailer but ships the product directly to the California consumer according to instructions from the true retailer in a drop shipment.
• The consumer in California buys and receives the product.

An out-of-state drop shipper that is a retailer engaged in business in this state is reclassified as the retailer in a drop shipment transaction and is responsible for collecting the use tax from the California customer.

Example

You are a distributor located outside of California that sells merchandise for resale to suppliers and vendors throughout the country. Your sales for delivery into California in the current year are over $500,000. These sales to your California customers are sales for resale to suppliers from whom you obtained valid resale certificates.

One of your customers, a supplier located outside of California, purchases tangible personal property from you and asks you to send (drop ship) it on their behalf to their California customer. The supplier is not a retailer engaged in business in California. The supplier is the true retailer. Therefore, because your sales for delivery into California exceed $500,000 in the current year and you ship merchandise to a California consumer on behalf of a supplier that is not a retailer engaged in business in California, you are considered the retailer in the drop shipment transaction. As such, you are now required to register with CDTFA. You must also collect the use taxes on your retail sales to California customers, including your transactions made on behalf of the supplier (the true retailer), and report and pay the taxes to CDTFA.

When you are responsible for the tax as the drop shipper, the amount of tax you are responsible for on the drop-shipped item is measured by either of the following:

• The amount the true retailer (your customer, the supplier/vendor) charged the California consumer, or
• The amount you charged the true retailer (your customer, supplier/vendor) plus a mark-up of 10 percent.

As a drop shipper, you may calculate the amount subject to tax based on the retail selling price of the tangible personal property plus a markup of 10 percent. You may use a lower markup percentage if you can document that the lower markup accurately and the documentation reflects the selling price charged by the true retailer to the California consumer.

However, if the supplier located outside of California in the above scenario is a retailer engaged in business in California, then you are not liable for the use tax on the transaction. Instead, the supplier is responsible for the collection of the use tax from their California customer and must report and pay it to CDTFA. You should obtain a valid resale certificate from the supplier to document that you made a nontaxable sale for resale to the supplier.

Your customer, the supplier, is a retailer engaged in business in California and is responsible for collecting, reporting, and paying the use tax if their sales for delivery in California, including those sales in which the supplier directs you or another person to deliver the tangible personal property to the California customer on their behalf, exceed $500,000 during the preceding or current calendar year. This is pursuant to RTC Section 6203.

For more information about drop shipments, please see Regulation 1706, Drop Shipments.

You might need to collect, report, and pay use tax as there is no exception for seasonal retailers. If your sales for delivery in California exceed $500,000 during the preceding or current calendar year, you are required to register with CDTFA, collect the state, local, and district use taxes from your customers and report and pay the amount to the state. Seasonal sellers may apply for a temporary permit using our online registration.