California charges sales tax on most physical goods sold at retail. The statewide base rate is 7.25%, and local district taxes can push the combined rate above 10% in some cities.1California Department of Tax and Fee Administration. Know Your Sales and Use Tax Rate What is subject to sales tax in California is, as a starting rule, every retail sale of tangible personal property, unless the law carves out a specific exemption.2California Department of Tax and Fee Administration. Sales and Use Tax in California The carve-outs are where most of the confusion lives, so the sections below walk through the goods you pay tax on, the ones you don’t, and the places the line moves depending on how a sale is structured.
Tangible Personal Property Is the Default
If you can see it, touch it, or weigh it, California generally taxes the retail sale of it. The state defines “tangible personal property” as anything perceptible to the senses.3California Legislative Information. California Code RTC 6016 – Tangible Personal Property Furniture, electronics, appliances, clothing, toys, antiques, and giftware are all taxable.4California Department of Tax and Fee Administration. What Is Taxable? Every retail sale is presumed taxable; the burden sits on finding an exemption that applies, not on finding a reason tax should be charged.
Items That Aren’t Taxed
The biggest exemption by dollar volume is food for home consumption. Staple groceries like produce, meat, eggs, cereal, and baking ingredients are not taxed when you buy them at a grocery store to prepare at home.5California Legislative Information. California Code RTC 6359 – Food Products Prepared food is a different story, covered in the next section.
Prescription medicines are exempt, whether dispensed by a pharmacist or furnished directly by a physician. The exemption also covers certain medical devices permanently implanted in the body, such as pacemakers, bone screws, and prosthetic limbs, along with orthotic braces and programmable drug infusion devices.6California Department of Tax and Fee Administration. California Revenue and Taxation Code 6369 – Prescription Medicines
Sales to the United States government and its agencies are exempt, as are sales to the American National Red Cross.7California Department of Tax and Fee Administration. Sales and Use Tax Law – Section 6381 Sales for resale are also not taxed at the wholesale stage. If you buy inventory to resell, you give your supplier a resale certificate, and tax is collected when the item is eventually sold at retail.8California Legislative Information. California Code RTC 6091
Nonprofits Are Not Broadly Exempt
A common assumption is wrong here. California treats nonprofit and religious organizations the same as any other seller or buyer for sales tax purposes. If a nonprofit sells merchandise, it owes sales tax on those sales unless a specific exemption applies to the particular transaction.9California Department of Tax and Fee Administration. Nonprofit Organizations True donations are not sales and fall outside the tax, but a T-shirt sold at a fundraiser is a taxable retail sale.
Groceries vs. Prepared Food
This line trips up more people than any other part of California sales tax. Food you take home and cook is exempt. Hot prepared food is taxable, wherever you buy it. A roasted chicken from a grocery deli counter is taxed the same as a meal at a sit-down restaurant.5California Legislative Information. California Code RTC 6359 – Food Products When a retailer bundles hot and cold items for a single price, like a hot sandwich with a cold drink, the whole combo is treated as hot prepared food and taxed.
Cold food sold to go can be exempt, but context matters. Food served for consumption at the retailer’s tables, chairs, or counters is taxable even when it’s cold. The same goes for food sold at locations where the parking is primarily for eat-on-site customers, even if you order it “to go.”10California Department of Tax and Fee Administration. California Revenue and Taxation Code 6359 – Food Products A cold sandwich pulled off a grocery store shelf is exempt. The same sandwich eaten at a deli’s seating area is taxable.
Services and Repair Labor
Pure services are not subject to sales tax. Paying a lawyer, a barber, or a personal trainer does not trigger sales tax, because the tax targets goods rather than labor on its own.11California Department of Tax and Fee Administration. Sales and Use Tax Regulations – Article 1, Service Enterprises
Labor becomes taxable when it creates or fabricates new tangible property. Hire a woodworker to build a custom table and the labor that goes into the table is part of the taxable sale of the finished product.4California Department of Tax and Fee Administration. What Is Taxable?
Repair Labor vs. Parts
Repair labor is generally not taxable. If a mechanic rebuilds your transmission, replaces brake pads, or does body work, the labor charge is not subject to sales tax. The parts are. Mechanics must list labor and parts separately on the invoice so the tax applies only to the parts.12California Department of Tax and Fee Administration. Tax Guide for Auto Repair Garages Industry Topics
Fabricating a new part or modifying an existing one shifts the labor into taxable territory, because the shop is creating new property rather than restoring old property. Installing parts on a brand-new vehicle is also treated as taxable labor, unlike installing the same parts on a used vehicle.
On small jobs where parts make up 10% or less of the total charge and no separate charge is made for them, the shop is treated as the consumer of those parts. The shop pays tax on its own cost, and no sales tax shows up on your bill. When parts exceed 10% of the total, the shop must itemize parts and labor separately, and you pay tax on the retail value of the parts.13California Department of Tax and Fee Administration. Regulation 1546 – Installing, Repairing, Reconditioning in General
Digital Products vs. Physical Media
California does not tax digital products delivered electronically. Downloaded software, e-books, mobile apps, and digital images transmitted over the internet are all exempt from sales tax.14California Department of Tax and Fee Administration. Internet Sales – Nontaxable Sales Put the same content on physical media and the treatment flips. If a vendor emails you a download link, there’s no tax. If that vendor also ships you a backup copy on a flash drive, the entire sale becomes taxable, not just the drive.
Shipping and Handling
Whether shipping is taxed depends on who carries the goods and how the charge appears on the invoice.
Shipping through a common carrier like UPS, USPS, or FedEx, listed as a separate line item, is not taxable.15California Department of Tax and Fee Administration. Publication 177 – Shipping and Delivery Charges When the seller uses its own truck, the delivery charge can still be excluded from tax, but only if the charge is separately stated, reflects the actual transportation cost, and the buyer and seller have an explicit agreement that ownership transfers before delivery begins. Without that title-passage agreement, delivery in the seller’s own vehicle is taxable.16California Department of Tax and Fee Administration. Sales and Use Tax Annotations – 557.0000
Handling charges are always part of the taxable sale. If a seller combines shipping and handling into a single line, the entire combined charge becomes taxable, because the nontaxable shipping piece can’t be separated from the taxable handling piece.15California Department of Tax and Fee Administration. Publication 177 – Shipping and Delivery Charges
Vehicles and the Trade-In Rule
Vehicles are taxable tangible personal property, and the math catches out-of-state transplants off guard. California calculates sales tax on the total purchase price, which includes cash, loan amounts, and the fair market value of anything you trade in.17California Department of Tax and Fee Administration. Tax Guide for Purchasers of Vehicles Buy a $40,000 car, trade in your old vehicle valued at $15,000, and you still owe sales tax on the full $40,000. Many other states let you subtract the trade-in before calculating tax; California does not.18California Department of Tax and Fee Administration. Sales and Use Tax Annotations – 140.0000
Buying from a private party or an out-of-state seller shifts you from sales tax to use tax. The rate is the same as your local sales tax rate, and you pay it when you register the vehicle with the DMV.17California Department of Tax and Fee Administration. Tax Guide for Purchasers of Vehicles
Use Tax on Out-of-State and Online Purchases
Use tax is the backstop that keeps you from avoiding sales tax by buying goods out of state. It applies to tangible personal property purchased from any retailer for use, storage, or consumption in California when no California sales tax was collected at the sale.19California Legislative Information. California Code RTC 6201 – Imposition of Tax The rate matches the combined sales tax rate where you live.
The usual trigger is an online purchase from a retailer that doesn’t collect California tax. You are legally required to report and pay it yourself, and for most purchases you can do this on your California income tax return.20Franchise Tax Board. Use Tax Certain items go directly to the CDTFA instead: vehicles that require DMV registration, vessels documented with the U.S. Coast Guard, aircraft, and leases of machinery or equipment.
Since 2019, out-of-state retailers have been required to collect and remit California use tax if their total sales of tangible personal property delivered into the state exceed $500,000 in the current or preceding calendar year.21California Department of Tax and Fee Administration. Use Tax Collection Requirements Based on Sales into California In practice, most large online retailers already add California tax at checkout, which narrows the situations where you need to self-report.