What’s tax exempt in California depends on which tax you mean. The state runs three separate systems: income tax through the Franchise Tax Board, sales and use tax through the California Department of Tax and Fee Administration, and property tax through the 58 county assessors with oversight from the State Board of Equalization. Each has its own list of exemptions, and qualifying for one does not carry over to the others.
Here’s what’s exempt under each.
Sales and Use Tax Exemptions
California’s statewide base sales and use tax rate is 7.25 percent, and most areas charge more once local district taxes are added.1California Department of Tax and Fee Administration. Know Your Sales and Use Tax Rate A handful of categories are removed from that tax entirely, and a few others get a partial break.
Groceries and Most Food for Home Preparation
Most food bought at a grocery store for home preparation is exempt. That covers cereals, meat, dairy, eggs, fruits, vegetables, coffee, bottled water, and fruit juices. The exemption falls away when food is sold heated, served as a meal, or eaten on the seller’s premises, though hot coffee sold on its own and hot bakery items stay exempt.2California Department of Tax and Fee Administration. Common Sales and Use Tax Nontaxable Sales and Partial Exemptions Carbonated beverages and alcoholic drinks never qualify as exempt food and are always taxable.3California Department of Tax and Fee Administration. Revenue and Taxation Code Section 6359 – Food Products
Prescription Medicines
Prescription drugs dispensed for human use are exempt. The exemption applies to medicines prescribed by an authorized provider and filled by a pharmacist, and to medicines furnished directly by physicians, dentists, and health facilities to their patients. It does not reach prosthetic devices, hearing aids, bandages, or medical instruments, which are governed by separate rules.4California Department of Tax and Fee Administration. Revenue and Taxation Code Section 6369 – Prescription Medicines
Items Bought for Resale
If you’re buying goods to resell them in the regular course of business, you can give the seller a resale certificate (CDTFA-230) and skip sales tax at the point of purchase. The certificate is your promise that the item will be resold before you put it to any other use. Misusing a resale certificate for personal purchases is a misdemeanor and carries a penalty of 10 percent of the unpaid tax or $500, whichever is greater, on top of the tax owed.5California Department of Tax and Fee Administration. California Resale Certificate
Sales to the Federal Government
Purchases billed directly to the United States government are exempt. The exemption follows the billing method, not the buyer: a purchase made with a government card where billing goes to the federal agency qualifies, but a purchase billed to the individual employee is taxable even if the agency reimburses them later.6California Department of Tax and Fee Administration. U.S. Government Bank Cards
Manufacturing and Research Equipment (Partial)
Qualified businesses can claim a partial exemption on machinery and equipment used primarily in manufacturing, research and development, or electric power generation. The partial exemption applies only to a portion of the state sales tax rate; local and district taxes still apply.2California Department of Tax and Fee Administration. Common Sales and Use Tax Nontaxable Sales and Partial Exemptions
Income Tax Exemptions
California’s personal income tax generally tracks federal rules for what counts as gross income, with a few important departures where the state is more generous than the IRS.
Social Security Benefits
California fully exempts Social Security benefits from state income tax. Retirement, disability, and survivor benefits are all covered. If any portion of your Social Security was pulled into your federal adjusted gross income, you subtract it on Schedule CA (540) when filing your California return.7Franchise Tax Board. Social Security This is a meaningful difference from federal rules, which can tax up to 85 percent of benefits once combined income crosses certain thresholds.
Military Retirement Pay
Starting with the 2026 tax year, military retirees can exclude up to $20,000 of federal military retirement pay and Survivor Benefit Plan payments from state income tax. The exclusion is subject to income limits based on adjusted gross income and filing status.8Senator Bob Archuleta. Senator Bob Archuleta Introduces SB 1407 Excluding Military Retirement Pay and Survivor Pay From Personal Gross Income Under the Personal Income Tax Law Before this change, California was the last state without any exemption for military retirement income.
Gifts, Inheritances, and Public Assistance
California follows the federal rules excluding gifts, inheritances, and certain welfare payments from taxable income. Money or property received as a gift or inheritance is not part of your state gross income, and public assistance benefits and government disaster relief payments are likewise excluded.
Property Tax Exemptions
Property tax is administered by county assessors.9California State Board of Equalization. Property Tax A few exemptions can reduce the assessed value your tax is calculated on, and one program lets qualifying owners carry a low assessed value to a new home.
Homeowners’ Exemption
If you own and live in your home as your primary residence, you can claim a $7,000 reduction in assessed value. At California’s base property tax rate of one percent, that works out to roughly $70 in annual savings. You apply once by filing Form BOE-266 with your county assessor, and the exemption stays in place until you sell or move out.10California State Board of Equalization. Property Tax Savings: Homeowners Exemption11California State Board of Equalization. Homeowners Exemption
Disabled Veterans’ Exemption
Veterans rated 100 percent disabled by the Department of Veterans Affairs for a service-connected condition, or compensated at the 100 percent rate due to unemployability, qualify for a much larger reduction. For the 2026 assessment year:
- The basic exemption is $180,671 off the assessed value of the veteran’s primary residence.
- The low-income exemption is $271,009 off the assessed value, for qualifying veterans whose household income falls below a set threshold.
These amounts are adjusted annually for inflation using the California Consumer Price Index.12California State Board of Equalization. LTA 2025/014, Disabled Veterans Exemption Increases for 2026 A disability rating below 100 percent does not qualify for any part of this exemption.13California State Board of Equalization. Disabled Veterans Exemption
Welfare Exemption for Nonprofit Property
Property owned and operated by a nonprofit for religious, hospital, scientific, or charitable purposes can be fully exempt under what California calls the Welfare Exemption. The organization cannot operate for profit, none of its earnings can benefit private individuals, the property must be actively used for the exempt purpose, and it must be irrevocably dedicated to that purpose so it cannot revert to private benefit if the organization dissolves. Claiming the exemption takes two steps: the organization first obtains an Organizational Clearance Certificate from the Board of Equalization, then files an annual claim with the county assessor for each property.9California State Board of Equalization. Property Tax
Proposition 19 Value Transfers
Homeowners aged 55 or older, those who are severely disabled, and victims of wildfires or governor-declared natural disasters can transfer their current property’s assessed value to a replacement home anywhere in California. Under Proposition 19, which took effect in April 2021, this transfer is available up to three times in a lifetime. The replacement home can cost more than the original; if it does, only the difference above the original home’s value is reassessed at current market rates.14Los Angeles County Assessor. Proposition 19 For long-time owners whose Proposition 13 assessed value sits far below current market prices, this can be the difference between a manageable tax bill on a new home and a reassessment that doubles or triples what they pay.
A Note on Nonprofits
Nonprofit status does not create a blanket exemption. A charity exempt from state income tax still pays sales tax on office supplies, furniture, and equipment the same as any other buyer; the sales tax exemptions above apply by transaction type, not by who’s buying.15California Department of Tax and Fee Administration. Getting Started – Tax Guide for Nonprofit Organizations Likewise, a federal 501(c)(3) determination letter does not make an organization exempt from California franchise tax; the Franchise Tax Board runs its own approval process using Form 3500 or the shorter Form 3500A for organizations that already have federal recognition.16Franchise Tax Board. Charities and Nonprofits