What is Sales Tax?
California’s sales tax generally applies to the sale of merchandise, including vehicles, in the state. California’s use tax applies to the use, storage, or other consumption of those same kinds of items in the state.
What is Use Tax?
Generally, if sales tax applies when you buy physical merchandise in California, use tax applies when you make a similar purchase without tax from a business located outside California.
For these purchases, the buyer is required to pay use tax separately.
Tax collected by the retailer or seller here in California is called sales tax, and the retailer is responsible for reporting and paying the tax to the state. When an out-of-state or online retailer doesn’t collect the tax for an item delivered to California, the purchaser may owe “use tax,” which is simply a tax on the use, storage, or consumption of personal property in California.
What are Sales Tax Certificates?
Sales Tax Certificates are used by purchasers, when acquiring property for resale in its present form or as components of other property. A business which is registered for sales and use tax can use a resale certificate only when the merchandise being purchased is to be resold by the business. A business cannot use a resale certificate to purchase merchandise that they will use and consume in the conduct of business. Any merchandise obtained upon resale certificate is subject to sales and use tax if it is used or consumed by the purchaser in any manner, and must be reported and the tax paid to the appropriate jurisdiction.
If you purchase tangible personal property for resale, the transaction is not subject to sales or use tax provided the sale is properly documented. As a result, your supplier will ask you to provide a resale certificate as proof that the property was purchased for resale. As explained below, the certificate must be taken on a timely basis, and it must include certain specific information.
The certificate may be in any form, such as a note, letter, or memorandum. It must contain the following information:
- The name and address of the purchaser.
- The number of the seller’s permit held by the purchaser (if the purchaser is not required to have a seller’s permit, see note below).
- A description of the property to be purchased.
- A statement that the described property is being purchased for resale. The certificate must contain words that state the property will be resold or is for resale. The use of words such as nontaxable or exempt is not acceptable.
- The date of the document.
- The signature of the purchaser or someone approved to act in his or her behalf.
Generally, use tax applies to purchases of tangible personal property made outside the United States and brought into, or shipped into California for storage, use, or other consumption.
Purchases not subject to use tax
In general, the following purchases are not subject to use tax:
- Hand carried items. The first $800 of goods that are purchased from a foreign country retailer and personally hand–carried into this state within any 30-day period is exempt from use tax. This exemption does not apply to goods sent or shipped to California.
- Gifts received while abroad. You should obtain and keep a signed letter from the giver describing the item and stating it was a gift. Keep in mind that tax does apply to property purchased for another person as a gift, including a spouse.
- Purchases for resale. If you operate a business in California and are required to hold a seller’s permit, items you purchase to resell are generally not subject to tax. Items you purchase for use in your business in California such as equipment, consumable supplies, or other tangible assets, are subject to use tax.
- Property first used outside of California for more than 90 days. When you purchase property (other than vehicles, vessels, or aircraft) outside of California and first use the property outside of the state for more than 90 days, the use tax does not apply. If you purchase property outside of California and first use it in California, your purchase is subject to use tax. You should retain documentation to show that the property was purchased for use outside of California. For more information, see Regulation 1620, Interstate and Foreign Commerce.
Please note: different rules apply to purchases of vehicles, vessels or aircraft; see our Tax Guide for Purchasers of Vehicles, Vessels, & Aircraft.
- Other exempt purchases. This includes purchases of food, prescription medicine, and other exempt items under the sales and use tax law. For additional information about exemptions, please see Publication 61, Sales and Use Taxes: Exemptions and Exclusions
For all purchases, you should retain documentation, such as receipts, invoices, shipping documents, etc., to support your claim that your purchase(s) brought or shipped to California is not subject to use tax.