California Occasional Sale Exemption: Two-Sale Limit and Rules

California’s occasional sale exemption lets you sell personal property without collecting sales tax, as long as your selling activity doesn’t look like a business. Under Revenue and Taxation Code Section 6006.5 and CDTFA Regulation 1595, you can generally make up to two sales of substantial amounts in any 12-month period before the state treats you as a retailer who must register for a seller’s permit and start collecting tax on every sale after that.¹²

What Qualifies as an Occasional Sale

Section 6006.5(a) covers individuals selling personal property that wasn’t held or used in a business requiring a seller’s permit. A couch, a lawnmower, a set of golf clubs you no longer want. These private sales are exempt from California sales tax so long as they don’t become frequent enough to look like a business operation.¹

The statute leaves “occasional” somewhat open-ended. Regulation 1595 puts a number on it.

The Two-Sale Limit Before You Need a Permit

Three or more sales for substantial amounts within any 12-month period generally triggers the seller’s permit requirement. Your first two qualifying sales in any rolling 12-month window stay tax-free. The third sale, and every sale after it during that window, becomes taxable.²

A common misreading is that hitting the third sale reaches back and taxes the first two. It doesn’t. The regulation keeps the first two sales exempt and requires a permit starting with the third.²

The CDTFA weighs three factors when deciding whether your activity has crossed into business territory:

Number: three or more sales within 12 months is the general minimum.
Scope: how frequent the sales are and how much money they involve. Three cheap items may not trip the threshold; three high-value transactions almost certainly will.
Character: how similar the items are in type and value. Selling the same kind of product over and over looks like a business. Selling unrelated personal belongings looks like a cleanout.

The regulation uses “substantial amounts” without naming a dollar figure, which lets the CDTFA look at the whole picture rather than a bright line. Three $50 bicycle sales probably draw no attention. Three $2,000 furniture sales will.

When You Already Hold a Seller’s Permit

If you hold a California seller’s permit for a business, you generally cannot use the occasional sale exemption for anything connected to that business. Section 6006.5(a) limits the exemption to property “not held or used by a seller in the course of activities for which he or she is required to hold a seller’s permit.”¹ A restaurant owner selling restaurant kitchen equipment is making a taxable sale. That same owner selling a personal kayak kept at home can still claim the exemption, because the kayak has nothing to do with the restaurant.

The dividing line is whether the item was used in the permitted activity. If you’ve ever claimed a depreciation deduction on an item or listed it as a business asset on your tax return, the CDTFA will have a hard time believing it was personal property. Keep business property and personal property clearly separated.

Getting a seller’s permit itself is free in California, though the CDTFA may require a security deposit against potential unpaid taxes.³ Once you’re registered, every subsequent sale draws more scrutiny, so pulling a permit you don’t actually need can create problems rather than solve them.

Vehicles, Vessels, Aircraft, and Mobile Homes

The occasional sale exemption will not help you avoid tax on a car, boat, airplane, or mobile home. California collects use tax on these at the point of registration no matter whether the seller is a dealer or a private party.⁴ When you buy a used car from a neighbor, the seller collects nothing, but you pay use tax to the DMV when you transfer the title. The combined California sales and use tax rate runs from 7.25 percent to 11.25 percent depending on where the buyer registers, so the bill on even a moderately priced vehicle can be significant.⁵

Family Transfers

Transfers of vehicles, vessels, aircraft, and mobile homes between certain family members are exempt under Revenue and Taxation Code Section 6285. The exemption covers sales between parents and children (including grandparents and grandchildren), between spouses, and between siblings if both are minors related by blood or adoption. The selling family member cannot be in the business of selling that type of property, so a parent who owns a car dealership can’t use this provision to pass inventory to a child tax-free. Transfers to a revocable living trust also qualify as long as the seller keeps the power to revoke and beneficial ownership doesn’t change.⁶

Business Reorganizations

Section 6006.5(b) provides a separate occasional sale exemption when a business changes legal form. A sole proprietor incorporating, two partners forming an LLC, or a corporation merging with another entity can transfer business assets to the new entity without California sales tax, if two conditions are met.

First, the transfer must include substantially all of the tangible personal property used in the business. Regulation 1595 defines “substantially all” as 80 percent or more of the tangible personal property held or used in the business, including property located outside California.² Keeping the best equipment in the new entity and selling off the rest piecemeal won’t pass this test.

Second, the real or ultimate ownership must remain substantially similar after the transfer. The same people who owned the business must hold roughly the same proportional interests afterward.¹ A sole proprietor converting to a wholly owned corporation clears this bar easily. Two 50/50 partners forming an LLC where each holds 50 percent works too. Bring in a new investor who takes a 40 percent stake, and the ownership structure has shifted enough to put the exemption at risk.

Vehicles, vessels, aircraft, mobile homes, and commercial coaches get their own matching rule under Section 6281. They’re exempt when transferred as part of a qualifying reorganization that meets the same two-part test: substantially all business property moves across and ownership stays substantially similar.⁷

Online Sales and the 1099-K Paper Trail

Selling through eBay, Mercari, or Facebook Marketplace doesn’t change the California rules, but it leaves a federal record. For 2026, third-party payment platforms must send you a Form 1099-K when your gross payments exceed $20,000 and you have more than 200 transactions.⁸ The 1099-K itself doesn’t decide whether you’ve crossed California’s occasional sale threshold, but it makes the volume of your activity visible, and that makes it harder to argue the sales were truly occasional if the CDTFA looks into it.

Penalties for Getting It Wrong

A seller who should have collected tax but didn’t faces a 10 percent penalty on the unpaid amount plus interest, which accrues monthly at the federal underpayment rate plus three percentage points.⁹ That’s the baseline for an honest mistake. If the CDTFA finds that a seller knowingly collected sales tax reimbursement from a buyer and failed to remit it, the penalty jumps to 40 percent of the unreported amount.¹⁰

For most individual sellers, the real risk isn’t intentional evasion. It’s not realizing when the threshold flipped. Someone selling furniture, electronics, and sporting goods on Craigslist throughout the year may not notice that the fourth or fifth sale triggered a permit requirement months ago. By the time the CDTFA identifies the activity, penalties and interest have been running the whole time.

Records to Keep

Documentation is the best defense in an audit. For each sale, keep the date, a description of the item, the sale price, and how you acquired the item in the first place. If you’re relying on the occasional sale exemption, you want to be able to show that you stayed under three sales of substantial amounts in every rolling 12-month window.

For business asset transfers claimed as occasional sales under Section 6006.5(b), hold onto records showing that 80 percent or more of tangible business property moved to the new entity and that ownership percentages stayed consistent before and after. The IRS recommends keeping records related to property until the statute of limitations expires for the year you dispose of it.¹¹ For most people that means at least three years after filing the return reporting the sale, with six years being safer if there’s any argument the IRS could make that income was underreported by more than 25 percent.

1
California Department of Tax and Fee Administration. California Code 6006.5 – Occasional Sale
2
California Department of Tax and Fee Administration. Regulation 1595 – Occasional Sales
3
California Department of Tax and Fee Administration. Obtaining a Seller’s Permit
4
California Department of Tax and Fee Administration. Tax Guide for Purchasers of Vehicles
5
California Department of Tax and Fee Administration. California City and County Sales and Use Tax Rates
6
California Department of Tax and Fee Administration. California Revenue and Taxation Code 6285 – Family
7
California Legislative Information. California Revenue and Taxation Code 6281
8
Internal Revenue Service. IRS Issues FAQs on Form 1099-K Threshold
9
California Legislative Information. California Revenue and Taxation Code 6591
10
California Department of Tax and Fee Administration. Regulation 1703 – Interest and Penalties
11
Internal Revenue Service. How Long Should I Keep Records