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California Businesses: How to Identify and Report California Use Tax Due
Enlarge image | California Businesses: How to Identify and Report California Use Tax Due |
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California Businesses:
How to Identify and Report California Use Tax Due
This publication explains how to examine your records to establish the use tax due on your purchases of physical
merchandise (for example, supplies, furniture, fixtures, and equipment) from out-of-state sellers. If your business
purchases items for use, storage, or consumption in California from a seller located outside California that does not collect
and report the California use tax, you may owe California use tax. The use tax rate is the same as your local sales tax rate.
The use tax is intended to protect California sellers who otherwise would be at a competitive disadvantage when
out-of-state sellers make sales of physical products to California customers without charging tax. The use tax also assures
that all businesses in the state contribute fairly to the funding of state and local programs whether they choose to make
purchases in California or outside the state.
When do you owe use tax on your purchases from out-of-state vendors?
In general, you owe California use tax when you
purchase physical merchandise from out-of-state
sellers for use, storage, or consumption in California.
If the out-of-state seller does not collect and report
the California use tax on your purchase, then you
must pay the use tax directly to us, the California
Department of Tax and Fee Administration (CDTFA).
If an out-of-state seller charges you California tax, you
should obtain a receipt. The receipt must describe the
item and show the purchase amount, the tax amount,
the seller’s name, address, and California seller’s
permit number (or use tax registration number), and
your name and address.
While out-of-state sellers often apply tax at the
statewide rate (currently 7.25 percent), you are liable for use tax at the full rate in effect at the California location where
you will first use the merchandise. When that location is within a special tax district, the full tax rate in effect for the
district applies (statewide tax rate + district tax rate[s]). If the seller charged you tax at a rate lower than the rate in
effect for your location, you owe the remaining use tax. For information about tax rates in specific areas, please see
California City and County Sales and Use Tax Rates.
How do you review your purchase invoices for California use tax due?
Generally, if sales tax would apply when you buy physical merchandise in California, use tax applies when you make a
similar purchase from a business located outside the state.
Examine your purchase invoices from out-of-state retailers in detail to make sure the retailer collected California use tax
when it was due and that it was the correct amount (see previous section). Review of the general ledger asset accounts and
Federal Income Tax Return depreciation schedules may assist you in identifying purchases that may be subject to use tax.
The California use tax is generally the liability of the purchaser and must be paid either directly to us or to the seller from
whom the physical merchandise was purchased, if such seller holds a seller’s permit or a Certificate of Registration—Use
Tax. If you do not hold a permit or have an account with us for paying your use tax, you may report and pay use tax to the
Franchise Tax Board (FTB) on your California income tax return.
If you believe that the out-of-state seller may have paid use tax on your purchase, thereby relieving you of responsibility
for all or part of your California use tax liability, you may contact your out-of-state seller to verify their tax payment to us.
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Are “Shipping and Handling” charges subject to California use tax?
Shipping charges are generally exempt from tax provided they are:
1. For delivery directly to the purchaser by common carrier, contract carrier, or U.S. Mail;
2. The invoice clearly lists delivery, shipping, freight, or postage as a separate charge; and
3. The charge is not higher than the actual cost for delivery.*
*To verify the actual shipping costs you should contact the seller. Without evidence of the actual cost, the consumer must
pay use tax on the entire shipping charge related to the purchase of a taxable item.
If any of the three requirements are not met, the shipping charge is generally taxable. If “handling” is charged with
shipping, the handling portion of the charge is subject to tax. Tax does not apply to charges for shipping and handling
associated with nontaxable sales, for example, sales for resale (publication 100, Shipping and Delivery Charges).
How do I pay the California use tax?
• California seller’s permit
If you hold a seller’s permit, you must pay use tax due when filing your sales and use tax return. You must enter
the amount of your purchase(s) under “purchases subject to use tax” on the return for the period that includes the
date when you first used, stored, or consumed the item in California. When you receive your seller’s permit, we will
instruct you to file your tax return either on a quarterly or quarterly prepay basis. Your tax return and payment are
due after the close of each reporting period. For example, if you are on a quarterly reporting basis, the reporting
period for the first quarter closes on March 31, your tax return and payment are due on April 30, the last day of the
following month.
• Required registration to report use tax
California law requires a “qualified purchaser” to register with us and annually report and pay use tax directly to
us. You can register on our website at www.cdtfa.ca.gov, by selecting Register for a Permit. You can also register to
report use tax in person at any of our offices. A qualified purchaser includes any business with at least $100,000 in
annual gross receipts from business operations. Gross receipts are the total of all receipts from both in-state and
out-of-state business operations. A qualified purchaser is required to file a return, and report and pay use tax on
the total purchase price of tangible merchandise that is subject to use tax during the preceding calendar year, and
for which tax was not paid to a retailer required to collect the use tax. The return along with payment is due by
April 15 of the following calendar year. For example, the return for 2013, along with the payment, is due by April 15,
2014.
For additional information, seepublication 126, Mandatory Use Tax Registration for Service Enterprises.
• California income tax return
If you do not hold a permit with us for paying your use tax as described above, you may report and pay use tax to
the FTB on your California income tax return. A Use Tax Table is included with the instructions for the FTB income
tax return; it is a tool to assist you in reporting use tax when filing your annual income tax return. The Use Tax Table
is only used for personal purchases less than $1,000, not for business purchases. Business purchases subject to use
tax should be reported using actual business purchase receipts. The due date for use tax is the same as the due
date for your state income tax return. The date the use tax liability was incurred must be within the tax year being
reported on your state income tax return. The FTB will forward the use tax collected to us. If you are a qualified
purchaser you are required to register with us to report and pay use tax.
• Consumer use tax account
If you make frequent taxable purchases from out-of-state sellers and are not required to register for a use tax
account as a qualified purchaser, you may register with us and obtain a consumer use tax account to report your
purchases subject to use tax. You can register on our website at www.cdtfa.ca.gov, by selecting Register for a Permit.
Once you have registered, you may pay any use tax due by filing your return. You can also register to report use tax
in person at any of our offices.
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We will give you an account number and instruct you to file your return either quarterly or quarterly prepay basis.
Your tax return and payment are due after the close of each reporting period. For example, if you are on a quarterly
reporting basis, the reporting period for the first quarter closes on March 31, your tax return and payment are due
on April 30, the last day of the following month.
• Vehicles, vessels, and aircraft
Special rules and reporting requirements apply to these purchases. Please see Regulation 1610, Vehicles, Vessels,
and Aircraft and the following publications:
• Publication 52, Vehicles and Vessels: Use Tax
• Publication 79, Documented Vessels and California Tax
• Publication 79A, Aircraft and California Tax
• Purchase subject to use tax on one-time purchase
If you do not have a seller’s permit and are not required to register for a use tax account as a qualified purchaser,
you can report your purchase(s) subject to use tax on our website at www.cdtfa.ca.gov by selecting File and Return
& Pay Taxes and click on File & Make a Payment. Once you have registered, you can pay any use tax due by filing your
return. You can also register to report use tax in person at any of our offices. Use tax is due on purchases made
prior to 2012 by January 31, of the following calendar year. Use tax is due on your purchase(s) made after January
1, 2012, by April 15 of the following calendar year in which you first purchased and used the property in California.
Penalty and interest applies to payments received after the due date. Please contact our Customer Service Center
for assistance at 1-800-400-7115 (CRS:711).
Are there any additional taxes or fees that are due on my purchases?
In addition to sales and use tax, as a consumer, you generally owe additional taxes or fees when you purchase: tires,
lead-acid batteries, cigarette and tobacco products, lumber products, covered electronic devices (for example, laptops,
monitors, tablets), or prepaid phones and cards (Prepaid Mobile Telephony Services (MTS)) from an out-of-state seller. If
an out-of-state seller does not collect and report the tax or fee on your purchase, you must generally pay the additional
taxes or fees directly to us.
How do I pay the additional taxes or fees?
If you purchased tires, lead-acid batteries, cigarette and tobacco products, or covered electronic devices, you are required
to register for an account, file a return and pay the applicable tax or fee for the purchase of tires, lead-acid batteries,
cigarette and tobacco products or covered electronic devices. You can register on our website at www.cdtfa.ca.gov, by
selecting Register for a Permit . You can also
register at any of our offices.
If you purchased Lumber products or prepaid
MTS, you may make a one-time payment of
the amount owed. For additional information
on how to pay, you may visit our website at
onlineservices.cdtfa.ca.gov.
The tax and fee rates on specific products may
be found on our website at www.cdtfa.ca.gov
by selecting Tax and Fee Rates, and then select
Special Taxes and Fees Rates.
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For More Information
For additional information or assistance, please take advantage of the resources listed below.
CUSTOMER SERVICE CENTER OFFICES
1-800-400-7115 (CRS:711) Please visit our website at
Customer service representatives are available www.cdtfa.ca.gov/office-locations.htm
Monday through Friday from 7:30 a.m. to 5:00 p.m. for a complete listing of our office locations. If you
(Pacific time), except state holidays. In addition to cannot access this page, please contact our
English, assistance is available in other languages. Customer Service Center at 1-800-400-7115 (CRS:711).
INTERNET
www.cdtfa.ca.gov
You can visit our website for additional information—such as laws, regulations, forms, publications, industry guides,
and policy manuals—that will help you understand how the law applies to your business.
You can also verify seller’s permit numbers on our website (see Verify a Permit, License, or Account).
Multilingual versions of publications are available on our website at www.cdtfa.ca.gov/formspubs/pubs.htm.
Another good resource—especially for starting businesses—is the California Tax Service Center at www.taxes.ca.gov.
TAX INFORMATION BULLETIN
The quarterly Tax Information Bulletin (TIB) includes articles on the application of law to specific types of
transactions, announcements about new and revised publications, and other articles of interest. You can find
current TIBs on our website at www.cdtfa.ca.gov/taxes-and-fees/tax-bulletins.htm. Sign up for our CDTFA updates
email list and receive notification when the latest issue of the TIB has been posted to our website.
FREE CLASSES AND SEMINARS
We offer free online basic sales and use tax classes including a tutorial on how to file your tax returns. Some classes are
offered in multiple languages. If you would like further information on specific classes, please call your local office.
WRITTEN TAX ADVICE
For your protection, it is best to get tax advice in writing. You may be relieved of tax, penalty, or interest charges that
are due on a transaction if we determine that we gave you incorrect written advice regarding the transaction and
that you reasonably relied on that advice in failing to pay the proper amount of tax. For this relief to apply, a request
for advice must be in writing, identify the taxpayer to whom the advice applies, and fully describe the facts and
circumstances of the transaction.
For written advice on general tax and fee information, please visit our website at www.cdtfa.ca.gov/email to email
your request.
You may also send your request in a letter. For general sales and use tax information, including the California
Lumber Products Assessment, or Prepaid Mobile Telephony Services (MTS) Surcharge, send your request to:
Audit and Information Section, MIC:44, California Department of Tax and Fee Administration, P.O. Box 942879,
Sacramento, CA 94279-0044.
For written advice on all other special tax and fee programs, send your request to: Program Administration Branch,
MIC:31, California Department of Tax and Fee Administration, P.O. Box 942879, Sacramento, CA 94279-0031.
TAXPAYERS’ RIGHTS ADVOCATE
If you would like to know more about your rights as a taxpayer or if you have not been able to resolve a problem
through normal channels (for example, by speaking to a supervisor), please see publication 70, Understanding Your
Rights as a California Taxpayer, or contact the Taxpayers’ Rights Advocate Office for help at 1-888-324-2798. Their fax
number is 1-916-323-3319.
If you prefer, you can write to: Taxpayers’ Rights Advocate, MIC:70, California Department of Tax and Fee Administration,
P.O. Box 942879, Sacramento, CA 94279-0070.
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Regulations, forms, publications, and industry guides
Lists vary by publication
Selected regulations,forms,publications, and industry guides that may interest you are listed below.
Spanish versions of certain publications are also available online.
Regulations
1628 Transportation Charges
1684 Collection of Use Tax by Retailers
1685 Payment of Tax by Purchasers
1686 Receipts for Tax Paid to Retailers
1823 Application of Transactions (Sales) Tax and Use Tax
1827 Collection of Use Tax by Retailers
Publications
79 Documented Vessels and California Tax
79A Aircraft and California Tax
100 Shipping and Delivery Charges
110 California Use Tax Basics
126 Mandatory Use Tax Registration for Service Enterprises
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