Storage and Use Exclusion
This guide explains the limited circumstances in which use tax may not be due when items or goods are temporarily stored in California, or incorporated into other property, and then transported outside California for use solely outside the state.
This guide does not provide a detailed overview of how use tax generally applies to your personal or business purchases. For more detailed information on how use tax applies generally, including how to calculate, report, and pay use tax, please visit our California Use Tax, Good for You. Good for California webpage and also see publication 110, California Use Tax Basics.
In general, California's sales tax applies to retail sales of items or goods in the state. However, when sales tax does not apply, use tax will apply to items or goods purchased for use, storage, or other consumption in California. For example, sales tax typically applies to a purchase made from an in-state vendor and use tax typically applies to a purchase made from an out-of-state vendor. As the purchaser, you are responsible for reporting and paying the amount of use tax due on your purchases from out-of-state vendors that did not collect the use tax.
Use Tax Not Owed on Certain Items Stored in California
The sales and use tax law provides an exclusion from use tax for certain purchases of items or goods that may otherwise be subject to use tax. Under certain circumstances, use tax will not apply to items or goods purchased which you:
- Stored in California for the purpose of subsequently transporting them directly outside the state for use solely outside the state; or
- Processed, fabricated, manufactured or incorporated into other items or goods to be transported outside California and used solely outside the state.
For purposes of this use tax exclusion, the phrase “use solely outside the state” generally means that the items or goods are used exclusively outside California for a minimum of six months.
Important details about this exclusion are:
- It only applies to purchases that would be subject to use tax, not those subject to sales tax;
- If you make any use of the items or goods in California other than storage prior to transporting them directly outside the state, you will generally owe use tax.
Examples of when the exclusion applies:
You purchase a part outside of California. You bring the part into California and incorporate it into equipment and do not use that equipment in California. The equipment is later shipped directly outside California for use solely outside the state.
You own a business and purchase promotional items (notebooks, pens, hats, etc., with company logo) outside California and bring them into the state. You do not use them in California, but only store them here. Later, you ship them to your out-of-state location and give them away to your customers.
Examples of when the exclusion does not apply because the transactions are subject to sales tax instead of use tax:
You purchase equipment from a California retailer who collects sales tax from you. You take possession of the equipment in California and then transport the equipment outside of the state for use solely outside the state.
You purchase promotional items from a California retailer who collects sales tax from you. You take possession of the items in California and then ship the items outside of the state where you then give them away to your out-of-state customers.
Vehicles, Vessels, and Aircraft
The exclusion provided by law may apply to purchases such as vehicles, vessels, and aircraft. However, there are additional requirements to consider when determining if vehicles, vessels, and aircraft are purchased for use outside of California.
For more information on how your purchases of vehicles, vessels, and aircraft may qualify for an exemption or exclusion from use tax, please see publication 52, Vehicles and Vessels: Use Tax and our Tax Guide for Purchasers of Vehicles, Vessels, & Aircraft.
How to Document the Exclusion from Use Tax
As the purchaser of the items or goods, you must retain documents to establish that:
- Use tax, not sales tax, would have applied to your purchase (i.e., documentation showing where the sale occurred, including but not limited to sales contract and agreement, purchase order, sales invoice and other relevant shipping documents).
- The items or goods were only stored in California, and no other use of the items or goods were made in this state (i.e., documentation may include but is not limited to warehouse invoices, asset and depreciation schedules and general ledgers entries).
- The property was transported directly outside the state (i.e., documentation may include but is not limited to shipping documents).
- After leaving this state, the items or goods were used thereafter exclusively outside California for a minimum of six months (i.e., documentation may include but is not limited to shipping documents, fixed asset schedules showing the location of items or goods and/or depreciation schedules, tax returns for other states, etc.).
If you purchased items or goods and paid use tax to the seller, you may later request a refund for the excess use tax paid if it was determined that your purchase qualified for the exclusion from use tax provided by law. You may request a refund from your seller or you may request a refund directly from the California Department of Tax and Fee Administration (CDTFA) by completing a CDTFA-101, Claim for Refund or Credit form for the excess use tax paid. For more information on the refund process, please see publication 117, Filing a Claim for Refund.
If you are the seller of the items or goods, and you are required to collect the California use tax, you should obtain a written statement. The written statement should be obtained at the time of purchase and in good faith, from your customer as documentation that the items or goods you sold to your customer qualify for the exclusion.
The written statement should be dated and include the following information:
- Date of purchase.
- Name and address of the purchaser.
- Signature of the purchaser, purchaser's agent or purchaser's employees.
- Seller's permit number of the purchaser (if the purchaser does not hold a seller's permit, a statement should explain why).
- A description of the items or goods purchased, and
- A statement explaining why the exclusion from use tax applies (i.e., facts showing that the property purchased will not be used in this state).
If you have additional questions about use tax exemptions, please call our Customer Service Center at 1-800-400-7115 (CRS:711). Customer service representatives are available Monday through Friday from 7:30 a.m. to 5:00 p.m. (Pacific Time), except state holidays.