California Sales Tax Guide for Businesses Selling In or Into the State

California has one of the highest base sales tax rates in the country and that’s just the start. With hundreds of local district taxes layered on top, your final rate can change based on where your customer lives, where the sale is fulfilled, or even where your warehouse is located.

Add in economic nexus rules, sourcing complexities, and marketplace facilitator laws, and it's easy to feel overwhelmed.

This guide breaks everything down so you can figure out what’s taxable, when you’re required to collect, and how to stay compliant with California’s sales tax rules.

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What is the current sales tax rate in California?

California’s statewide base sales tax rate is 7.25%, but in most areas, the actual rate is higher due to additional district taxes imposed by local jurisdictions.

Depending on the city or county, your total combined rate can go up to 10.25%. These district taxes apply on top of the base rate and vary widely even between neighboring ZIP codes.

For example, shipping to one ZIP code in Los Angeles might mean a 9.5% rate, while delivering to a customer just a few miles away could bump it to 10.25%.

Because California uses a destination-based approach for district taxes, you need to calculate the final rate based on where the product is delivered, not just where your business is located.

To avoid errors, it’s best to use tax calculation tools that apply the correct rate based on your customer’s exact delivery address, not just the city or state.

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What’s the difference between sales tax and use tax in California?

Sales tax and use tax often get confused but they serve the same purpose: making sure California collects tax on taxable items used in the state.

• Sales tax is collected by sellers when you make a taxable sale to a California customer.
• Use tax kicks in when a customer or your business buys something from out of state and sales tax wasn’t charged at the time of purchase.

Here’s a quick example:

If you sell goods to customers in California, you collect sales tax.

If your business buys equipment online from a seller who didn’t charge tax, you are responsible for reporting and paying use tax.

In short, one is collected by the seller (sales tax), the other is paid directly by the buyer (use tax) but both ensure tax is paid on goods used within California.

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When are you required to collect California sales tax?

You’re required to collect California sales tax if you meet any of the following conditions:

• You sell taxable goods or services to customers in California
• You’ve established sales tax nexus in the state, either physical, economic, or marketplace
• You fulfill orders delivered into California, regardless of where your business is located

This applies to both in-state and out-of-state sellers. You don’t have to be based in California to have a tax obligation if you cross nexus thresholds, you must register, collect, and remit tax.

Even small businesses selling online need to watch for these triggers. California’s rules are strict, and penalties apply for late registration or missed filings.

If you’re unsure whether you’ve hit nexus, it’s a good idea to track your California sales volume and monitor how you fulfill orders.

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What triggers sales tax nexus in California?

In California, you’re required to collect sales tax once you establish nexus - a connection between your business and the state. This can happen in several ways:

i) Physical nexus

You have an office, employee, warehouse, or inventory located in California. Even using a third-party fulfillment center like FBA (Fulfillment by Amazon) can trigger this.

ii) Economic nexus

You exceed $500,000 in annual sales into California, even if you have no physical presence in the state.

iii) Marketplace nexus

You sell through platforms like Amazon, Etsy, or Walmart that exceed the economic threshold. These platforms are required to collect and remit sales tax on your behalf.

iv) Affiliate or click-through nexus

You earn revenue from California-based affiliates or advertisers who refer customers to your site.

v) Event-based nexus

Participating in trade shows, expos, or conventions in California, even temporarily, can establish a nexus.

If any of these apply, you’re obligated to register with the California Department of Tax and Fee Administration (CDTFA) and begin collecting sales tax.

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How California sources sales tax across the state

California uses a modified origin-based sourcing model, which can be tricky if you're selling across multiple locations.

Here's how it breaks down:

• State, county, and city taxes are based on the seller’s location
• District taxes, which often make up the largest rate differences are based on the customer’s delivery address

That means a single transaction might involve multiple tax layers from different jurisdictions. For example, if your business is in San Diego but you ship to a customer in Oakland, the district tax rate for Oakland applies, not San Diego.

This mix of origin and destination rules makes California unique, and often confusing. If you're fulfilling orders in-state or using local warehouses, it’s critical to know where tax applies and how to assign the right rates.

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Which goods and customers are exempt from California sales tax

Not everything sold in California is taxable. The state provides exemptions for specific types of goods and buyers.

Commonly exempt goods include:

• Most groceries and unprepared food (e.g., fresh produce, bread, milk)
• Prescription medications and qualified medical devices
• Items purchased with food stamps or WIC benefits

Common exempt customers include:

• Government agencies making official purchases
• Nonprofit organizations with approved tax-exempt status
• Resellers who purchase items for resale and provide a valid resale certificate

If you sell to exempt customers or deal in exempt products, it’s still your responsibility to maintain proper documentation like resale or exemption certificates for audit purposes.

Missing or invalid certificates can result in back taxes, interest, and penalties. So be sure to collect and store them securely.

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Are there any sales tax holidays in California?

Unlike many other states, California does not offer sales tax holidays.

That means there are no annual events where sales tax is waived on items like school supplies, clothing, disaster preparedness goods, or energy-efficient products.

If you're used to planning promotions around tax-free weekends in other states, you won’t find the same opportunities here. In California, sales tax applies year-round unless the item or buyer qualifies for a specific exemption.

This simplifies tax rules slightly but also means you’ll need to stay consistent with your tax collection throughout the year.

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What marketplace facilitators are required to do in California?

If you sell through online platforms like Amazon, Etsy, Walmart, or eBay, California law shifts the tax responsibility to the marketplace facilitator, not the individual seller.

Here’s what these platforms are required to do:

• Collect and remit sales tax on your behalf for all taxable sales shipped to California customers
• Register with the California Department of Tax and Fee Administration (CDTFA) if their total sales into the state exceed $500,000 annually

As a seller, if the platform handles collection and remittance, you typically don’t need to register separately for sales tax but it's still your responsibility to confirm that the platform is complying.

You may still need to track your gross receipts and file for other state obligations, like income tax or business registration, so don’t assume everything is covered. If you're operating in California or planning to expand there, book a demo to see how we make tax compliance simpler.

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Frequently asked questions

1. Do I need to collect sales tax if I only sell online to California customers?

Yes. If you have nexus in California, such as over $500,000 in annual sales, you’re required to collect and remit sales tax even if you’re based out of state.

2. Do digital goods require sales tax in California?

Some do. For example, prewritten software on physical media is taxable. However, purely digital downloads and SaaS subscriptions are usually exempt under current rules.

3. Is use tax something my business has to report?

Yes. If your business makes out-of-state purchases and sales tax wasn’t collected, you must self-assess and report use tax to the CDTFA.

4. Can a customer be exempt from sales tax in California?

Yes. If they provide valid documentation. Resellers, nonprofits, and government entities can qualify for exemptions with proper certificates on file.