California Sales Tax Exemptions for Out-of-State Deliveries | Key Guidelines

The California Department of Tax and Fee Administration (CDTFA) published a short guideline clarifying the taxability rules for products sold and delivered outside California. The guideline includes examples of when the sales tax exemption applies and in which situations sales may not qualify for it.

CDTFA publication 34, Motor Vehicle Dealers, and Regulation 1620 Interstate and Foreign Commerce provide further information and details on this matter.

Sales Tax Exemption Framework for Out-of-State Sales

Under the California Sales Tax rules and regulations, sales tax is generally not applicable to sales of products shipped directly to the consumer in a location outside California. For example, a sale is exempt from sales tax if the taxable persons deliver the product directly to the consumer using their transportation or ship it directly to consumers using a third party, such as the U.S. Postal Service, customs broker, or forwarding agent.

In addition, sales of products intended for use in other countries or new noncommercial vehicles to foreign residents are exempt from sales tax if they meet the delivery criteria outlined in accompanying regulations.

However, if the consumers or their representatives take possession of the bought products in California, even for a short period, the sale cannot qualify for a sales tax exemption. Even when products are delivered outside California to Californian residents, the sales tax exemption is not applicable unless the consumer states in writing that the products will be used outside California.

Conclusion

The guidelines provide information showing that the sales tax exemption applies when products sold are shipped directly to consumers outside California or are intended for use in foreign countries if the specified delivery conditions are met. Furthermore, under California sales tax rules, even temporarily, possession or use of products within California disqualifies sales from the exemption. 

Therefore, sellers should carefully consider where their consumers come from, their residency, and how they deliver their products to consumers when applying for sales tax exemption.

Source: California Department of Tax and Fee Administration