Sales and use taxes in California

Sales and use taxes in California are among the highest in the United States and can be levied by the state and local governments.

Rates

At 7.50%, California has the highest minimum state sales tax in the United States, which can total up to 10.00% with local sales tax included.[1] Some claim that this rate partially compensates for the much reduced property tax revenue brought on by Proposition 13. But others point out that, in most counties (all but the rural counties), property tax revenues today are higher than the year before Prop 13 passed, even after adjusting for inflation and population growth. Sales and use taxes in the state of California are collected by the publicly elected Board of Equalization, whereas income and franchise taxes are collected by the Franchise Tax Board. The statewide 7.50% is allocated as:[2]

Supplementary sales tax may be added (with voter approval) by cities, counties, service authorities, and various special districts (such as the Bay Area Rapid Transit district). Additional sales taxes levied by counties and municipalities are formally called "District Taxes". The effect is that sales tax rates vary from 7.50% (in areas where no additional taxes are charged) to 10.00% (in the cities of South Gate and Pico Rivera, the highest in California).[3] For instance, Sacramento, the state capital, has a combined 8.00% sales tax rate, and Los Angeles, the largest city in the state, has a combined 9.00% sales tax rate.[1]

Temporary statewide increases

The last changes to the published local tax rates took effect on January 1, 2013. Official updates are published on the Board of Equalization website and also in Publication 71.[7][8]

Taxation of online sales

As of 1 July 2011 California applies sales tax to online retailer purchases. It is the retailer's responsibility to collect Ca sales tax on all purchases made within (or shipped to) the state of California regardless where the retailer/supplier is located. This sales tax levy was arranged through a negotiation between the governor, Jerry Brown, and the large online retailers such as Amazon. It is commonly referred to as "the Amazon deal." Before this deal Amazon, and others, remained physically outside of the state (nexus law) to get around the sales tax laws as they were written and interpreted before the deal was brokered, whereas now Amazon and others have many warehouse, office, and research locations within the state of California, thus contributing to the California economy as a whole.

Previously Assemblywoman Nancy Skinner of Berkeley twice introduced legislation to apply sales tax to online retailers such as Amazon.com only to have the bills be vetoed by the governor. On 19 January 2011 Skinner introduced similar legislation in the form of AB153. Because of political wrangling this bill never made it to law but the above "deal" was brokered by the governor. This bill would have required out-of-state online sellers with affiliates in California to collect sales tax on purchases made by state residents. The affiliate provision was included to ensure that only sellers with a California nexus are taxed, as required by federal law and the U.S. Supreme Court's ruling in Quill Corp. v. North Dakota.

Exemptions

In general, sales tax is required on all purchases of tangible personal property to its ultimate consumer. Services are not subject to sales tax (but may be subject to other taxes). Liability for sales tax attaches to the seller, not the buyer; but the seller is allowed by law to collect the tax from the buyer (and if the seller does so, the buyer is obligated to pay it).

Vehicle purchases are taxed based on the city and county in which the purchaser registers the vehicle, and not on the county in which the vehicle is purchased. There is therefore no advantage in purchasing a car in a cheaper county to save on sales tax (a one-percent difference in sales tax rate would otherwise result in an additional $300 loss on a $30,000 car).

In grocery stores, unprepared food items are not taxed but vitamins and all other items are. Ready-to-eat hot foods, whether sold by supermarkets or other vendors, are taxed. Restaurant bills are taxed. As an exception, hot beverages and bakery items are tax-exempt if and only if they are for take-out and are not sold with any other hot food. If consumed on the seller's premises, such items are taxed like restaurant meals. All other food is exempt from sales tax.

Also excluded are food animals (livestock), food plants and seeds, fertilizer used to grow food, prescription drugs and certain medical supplies, energy utilities, certain alternative energy devices and supplies, art for display by public agencies, and veterans' pins. There are many specific exemptions for various veterans', non-profit, educational, religious, and youth organizations. Sale of items to certain out-of-state or national entities (mostly transportation companies) is exempt, as are some goods sold while in transit through California to a foreign destination.

Occasional or one-time sales not part of a regular business are exempt, except that sales of three or more non-food animals (puppies, kittens, etc.) per year are taxed.[9]

There are also exemptions for numerous specific products, from telephone lines and poles, to liquid petroleum gas for farm machinery, to coins, to public transit vehicles. There are partial exemptions for such varied items as racehorse breeding stock, teleproduction service equipment, farm machinery, and timber-harvesting equipment.[10] For an organized list of exemptions, with estimates for how much revenue the state loses and the people saves for each, see Publication 61 of the Board of Equalization.[11]

Sales tax is charged on gasoline. The tax is levied on both the gasoline and on the federal and state excise taxes, resulting in a form of "double taxation". The sales tax is included in the metered price at the pump. The California excise tax on gasoline as of mid-2011 is 35.7 cents per gallon for motor fuel plus a 2.25% sales and use tax, 13 cents per gallon for diesel plus a 9.12% sales and use tax.[12]

Motor vehicle gasoline and jet fuel are subject to special taxation regimes. In 2005, there was a political dispute in the San Francisco Bay Area about whether revenues for jet fuel should be credited to San Mateo County (where San Francisco International Airport appears to be physically located), the City and County of San Francisco (where the airport is legally located, because it is owned by the City-County), or Alameda County, where Oakland International Airport is located. (The distinction is largely point of sale delivery vs. point of negotiation for the sale.) This is controlled by Regulation 1802,[13] which has other provisions about businesses which have multiple locations.

The California Board of Equalization provides an online list of sales taxes in the communities of the state.

Debate

Critics of the current sales tax regime charge that it gives local governments an incentive to promote commercial development (through zoning and other regulations) over residential development, including the use of eminent domain condemnation proceedings to transfer real estate to higher sales tax generating businesses.[14]

References

  1. 1 2 Equalization California Board of (January 2013). "Publication 71, California City and County Sales and Use Tax Rates, January 1, 2013 Edition" (PDF). Retrieved 2013-01-01.
  2. ↑ California Board of Equalization - Detailed Description of the Sales and Use Tax Rate
  3. ↑ California Board of Equalization January 1, 2013, California City & County Sales & Use Tax Rates
  4. ↑ California Legislature Passes Tax Plan, Ends Impasse
  5. ↑ "California Statewide Sales and Use Tax Rate to Decrease by 1% on July 1, 2011" (PDF). California State Board of Equalization. Retrieved March 8, 2013.
  6. ↑ "TEXT OF PROPOSED LAWS: Proposition 30" (PDF). California Secretary of State.
  7. ↑ California Board of Equalization
  8. ↑ California Publication 71
  9. ↑ http://www.boe.ca.gov/pdf/pub122.pdf
  10. ↑ New Sales and Use Tax Exemptions
  11. ↑ California Publication 61
  12. ↑ California Board of Equalization Online Tax Rates
  13. ↑ http://www.boe.ca.gov/pdf/reg1802.pdf Archived November 3, 2010 at the Wayback Machine
  14. ↑ "City Competition for Sales Taxes: Symptom of a Larger Problem?". Research Brief. Public Policy Institute of California. July 1999.
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