California Sales & Use Tax FAQ

1. How to correctly charge California Sales Tax?

One of the common questions our clients asked is how to correctly charge California Sales Tax. A lot of people thought that they are required to charge sales tax based on the destination rate. This is not true!

The following is a quote from California BOE Publication 105, entitled District Taxes and Delivered Sales:

If you are engaged in business in a special taxing jurisdiction, you must report district taxes on Schedule A of your sales and use tax return. The total tax rate in effect in a special tax district (statewide rate + district rate) generally applies to sales delivered or shipped into the district. However, if you are not engaged in business in the district, you are not required to collect the district use tax. Instead, you may calculate the tax due on your sale at the statewide rate. Generally, if you are not engaged in business in a special tax district and you ship by common carrier into the district, your customer is liable for the district use tax. As a courtesy to your customer, you may choose to collect the district use tax from them.

The above publication provides two options for charging sales tax on sales of tangible goods: (1) Collect the taxes for the counties, city and special districts in which your business has a physical presence, or (2) collect taxes for all the counties and cities districts to which you ship goods.

The first collection option is what California merchants are required to do. If your company has no presence in the destination jurisdiction or district, you only need to collect the statewide tax. If the delivery address is within the same jurisdiction as your business, you need to collect all applicable state, county and city district sales tax rates for the delivery address.

The second collection option is based on destination, regardless of where the seller is located. If the destination is in the same jurisdiction as your company, you collect the applicable statewide, county and city district sales taxes that you are required to pay. If the destination is outside your businessŐ jurisdiction, in addition to the statewide tax, you also collect and pay any applicable county and city district taxes payable there as a courtesy to your customer.

Following is an example of the sales tax rate for each option using tax rates published by Board of Equalization as of 4/1/2013:

XYZ Auto Parts is located in the city of San Jose, Santa Clara County. It ships a part to a customer in the city of El Monte, Los Angeles County.

Under the first option, XYZ is required to collect the 7.50% statewide sales tax only.

Under the 2nd option, XYZ will collect the following state and district sales taxes:

State: 7.50%
Los Angeles County: 1.5%
City of El Monte: 0.50%
Total: 9.50%

There are some exceptions for collecting sales tax. Please see full details published on Board of Equalization website.

Online Image has developed a cutting-edge API product called US Geocoder California Sales Tax API to accommodate these two collection methods. It produces real time sales tax rate for any given California address with 100% sales tax law compliance. All you need to do is to provide delivery address and we return real time sales tax rate! It can be easily integrated with any online store or online shopping cart program. Please go to USgeocoder.com to find out how this unique product keeps you compliant with California Sales tax law!

2. Can I rely entirely on zip code or city to determine tax rates?

No, it's not always possible to determine proper tax rates with zip codes or city. Zip codes frequently overlap city and county lines. For instance, city of Roseland is a small city inside of city of Santa Rosa. Roseland and part of Santa Rosa have the same zip code 95407. Roseland does not have city district tax; Santa Rosa has 0.50% city district tax. So if you use zip code to determine tax rate for Roseland, which one should you use?

On the other hand, voter-approved city district tax only applies to the areas within city limits. Areas in unincorporated areas are normally not subject to such city district tax. 57 out of 58 counties in California have unincorporated areas. For example, in city of campbell, there are some unincorporated areas in zip code 95008. If a shipment is delivered to zip code 95008 in Campbell city, how do you know if the destination is in or out of a unincorporated area? If you are not sure, are you going to charge city district rate?

Our California Sales and Use Tax Table provides tax rates by zip code, city and county. It is designed for customers who are using third party accounting software or online applications that only take zip codes or cities to set sales and use tax rules. If you are looking for a 100% tax compliant solution, check out our California Sales and Use Tax API and custom eCommerce application development service. California Sales and Use Tax API geocodes the destination and determines its county, city and incorporation, talks to the latest tax rate database published by California Board of Equalization, and returns the REALTIME tax rates to your application. It provides the most accurate tax rates with 100% tax compliance!

3. How to be 100% tax law compliant?

To be 100% tax law compliant, let's first understand how California sales and use tax rate works.

California sales and use tax rates are a combination of the statewide tax and local district taxes. The tax rate is calculated based on the shipping address, not billing address.

A "district" is a local jurisdiction that, under enabling statutes in various codes, may impose transactions (sales) and use taxes within its borders. Voter approved district taxes are levied on a county-wide basis and within many incorporated city limits. (Per CA BOE publication 44 http://www.boe.ca.gov/pdf/pub44.pdf)

As a seller, you can either choose to collect the sales tax based on the relationship between the shipping address and your business locations, or use the destination tax rate across the board. In either case, you need to know the most current statewide and local district tax rates for the district(s) in which you have a business presence and the delivery address for the goods you are selling.

CA releases the tax rate in city and county format. However a lot of accounting software and online applications only take zip codes to set sales tax rules. Because zip codes frequently cross city and county lines, this method is inaccurate.

On the other hand, district taxes apply only within the city limits of each district. Residents and business located in unincorporated and other neighboring areas outside the city limits are generally not subject to the additional district taxes. Among 58 counties in California, 57 counties have unincorporated areas. All these unincorporated areas normally have a designated city name for their physical and mailing address. So even you use the city name to determine the tax rate you won't get a 100% accurate result. You will often overcharge people who have a city name that matches a tax district, but who in fact are in an adjacent unincorporated area.

So the only way to be 100% sales tax compliant is to accurately locate the shipping location within or without the incorporated areas making up the special tax districts. With our proprietary USGeocoder, our Sales and Use Tax API determines the incorporated status for a given address, talks to the latest BOE tax rate database, and returns the exact tax rate information to your application. It is the perfect solution for those who are looking for 100% tax compliance.

4. As a seller, am I required to collect sales tax?
5. All my sales are made through Internet, am I required to follow the same sales tax rule as other retailers?
6. Are there Internet sales not taxable?
7. How many taxing districts does California have?
8. More sales and use tax FAQs from California BOE's website

DISCLAIMER:

ONLINE IMAGE IS NOT ASSOCIATED WITH CALIFORNIA BOARD OF EQUALIZATION IN ANY SHAPE OF FORM. ALL INFORMATION PROVIDED ON THIS WEBSITE ONLY REFLECTS ONLINE IMAGE'S UNDERSTANDING OF CALIFORNIA SALES AND USE TAX LAW. YOU USE THIS INFORMATION AT YOUR OWN RISK. YOU SHOULD CONSULT YOUR OWN TAX ACCOUNTANT FOR YOUR OWN QUESTIONS.

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