Businesses in California that sell tangible personal property in the state are liable for the collection of sales tax and must apply to the Board of Equalization for a seller’s permit for each location in the state. If a business changes ownership or business locations, it must obtain a new permit.
Under the Sales and Use Tax Law, the sale or use of tangible personal property in California is subject to a statewide tax of 8.25 percent. This rate includes both a state tax and a state-administered local sales and use taxes for cities and counties. Several counties and cities also have special district taxes that are applied in increments of .125 to .50 percent. Since a county or city may have more than one special tax district, sales and use tax rates in California range from about 8.25 percent to 8.85 percent depending on the place of sale or use.
Sales and use taxes are overseen by the California Board of Equalization (BOE). For a complete, current list of tax rates by county and city, businesses should obtain a copy of BOE Pamphlet No. 71, California City and County Sales Use Tax Rates. Copies are available from any BOE office listed at the end of this section, or at the website: http://www.boe.ca.gov/sutax/pam71.htm.
NOTE: There is no federal sales tax, use tax or value-added tax.
Sales and use tax pertaining to interstate and foreign commerce is discussed in the publication, Board of Equalization Sales and Use Tax Regulation No. 1620, Interstate and Foreign Commerce, which can be obtained from the BOE or at the website: http://www.boe.ca.gov/pdf/reg1620.pdf.
Detailed information about sales tax can be obtained from:
California Board of Equalization
Customer and Taxpayer Service
P.O. Box 942879
Sacramento, CA 94279-0001
Toll-free telephone within the United States: (800) 400-7115
Tel: (916) 445-6464
Fax: (916) 322-2015
The Franchise Tax Board (http://www.ftb.ca.gov) administers an 8.84 percent tax (known as the “Bank and Corporation Franchise Tax”) on net corporate income.
California S Corporations are subject to tax rate of 1.5 percent on net income.
California uses the unitary method to determine the portion of income reasonable attributable to this state and thus subject to the Bank and Corporation Franchise Tax. Corporations deriving income from sources both within and outside the state are required to report the income of all related business units in a combined report. The combined income derived from all business activity is apportioned to each state or nation using an apportionment formula.
The percentage of property, payroll, and sales attributed to California, versus worldwide operations, is calculated. They are then added together, with double weight given to sales, and divided by four.
This calculation determines the percentage of the unitary or combined income subject to California’s bank and corporation franchise tax.
Apportionment Formula = percentage of unitary income subject to California’s corporate tax.
(California Payroll (percent) + CA property (percent) + CA Sales (percent) + CA Sales (percent)).
Multinational corporations may make a “Water’s Edge” election whereby they exclude most income derived from foreign operations from the combined report. Foreign business units or corporations that have an apportionment percent in excess of 20 percent must be included in the combined report. The election lasts for seven years, but it is continuously renewed unless a notice of non-renewal is filed by the business.
- Effective January 1, 2011 California Businesses will have the option to select a Single Sales Factor. This allows companies to choose to weigh only sales made in the state – not property or payroll – to determine corporate taxes owed.
If you would like more additional information on the Franchise Tax Board’s “Water’s Edge” visit http://www.ftb.ca.gov/aboutFTB/manuals/audit/water