When does sales tax apply for California businesses?

If you’ve just started your own business or are considering a business venture, then you probably have a lot of questions about how to run your business and what laws are applicable to your situation.

One question you might have is the one we’re asking in this week’s post title: when does sales tax apply for California businesses? Although we’d like to give you a straight forward answer on this one, our state’s laws are quite complicated, meaning the answer may not be an easy one. But if we look at the law in more general terms, you might get the answer you need to take the next step and speak to an attorney.

Here in California, most retail sales are subject to sales tax as well as some services. There are many exemptions and exceptions though, which is why we can’t directly answer the question we ask above. Generally speaking, if you are manufacturing and selling a piece of “tangible personal property,” then you would be subject to our state’s sales tax laws.

As we mentioned, there are exemptions to this law. But because of the complexity of our laws, it may be difficult for the average person to know whether or not an exemption applies. Consider food.  Food purchased at a grocery store is typically exempt from sales tax.  On the other hand, food intended for consumption where it was purchased, is subject to sales tax.  There are many such exemptions and exceptions to the exemptions.

Another question is who is responsible for sales tax.  Surprisingly, it is the seller who is actually required to pay the tax but sellers can, and generally do, pass the tax onto the buyer.

While litigation about sales tax is uncommon, for businesses it is important to know when to charge sales tax and when not to. A lawyer experienced in business law can guide business owners through this complicated process.

Source: The California State Board of Equalization, “Applying Tax to Your Sales and Purchases,” Accessed April 10, 2015