California Sales & Use Tax Guide 2026 | Nexus, Exemptions & Rates

Sales and Use Tax Basics in California

Sales Tax

California's sales and use tax legislation states that sales tax applies to all retail sales of tangible personal property, meaning goods and products, such as furniture, giftware, toys, antiques, clothing, and vehicles, except those explicitly listed as exempt.

Use Tax

The use tax, which complements the sales tax, generally applies to the storage, use, or other consumption in California of goods purchased from retailers for which sales tax was not charged, collected, or remitted.

Transactions subject to use tax in California include consumer or retailer purchases from out-of-state, including foreign sellers who do not collect tax on their sales. Furthermore, retailers must pay use tax when they use items bought under a resale certificate for personal or business purposes. This may occur when a retailer uses an item before selling it or using it for manufacturing without it becoming part of the final product.

California Sales and Use Tax Rates

California's statewide sales and use tax rate is 7.25%, made up of a 6% state rate and 1.25% local tax (1% local jurisdiction and 0.25% local transportation fund). On top of that, many cities and counties have voter-approved district taxes. Each one is between 0.10% and 2%, and some areas have more than one. Combined rates currently run from 7.25% to 11.75%.

To determine effective sales and use tax rates, taxable persons should consider the location of the sales, which is the address where the goods are sold.

For example, a Los Angeles County address is not enough. From 1 October 2026, the countywide rate is 10.25%, but Lancaster and Palmdale, in the same county, are at 11.75%. Rates also change often: the Los Angeles County rate went from 9.75% to 10.25% on 1 October 2026. Linking the address with the relevant district is therefore essential to determining the applicable tax rate.

Tax-Exempt Transactions

Transactions not subject to sales and use taxes in California include sales of food products for human consumption, sales to the US Government, and sales of prescription medicine.

Additionally, the first USD 800 of purchases from a retailer in a foreign country by an individual who personally hand-carries them into California from the foreign country within any 30-day period is exempt from use tax. However, this exemption does not apply to property sent or shipped to this state.

Also, if the sale is documented correctly, goods and products bought for resale are exempt from sales and use tax. Resellers must provide their suppliers with a resale certificate for exempting these transactions.

Additionally, sales, storage, use, or other consumption of liquefied petroleum gas, or LPG, when delivered in a tank of 30 gallons or more, are exempt from sales and use tax if bought for household activities in a qualified residence.

There are also partial exemptions (state portion only) for diesel fuel used in farming and food processing, farm equipment and machinery, racehorse breeding stock, timber harvesting equipment and machinery, manufacturing and R&D equipment, and teleproduction equipment.

Nexus Rules in California

In California, there are three types of nexuses relevant for sales and use tax purposes: physical nexus, economic nexus, and marketplace nexus.

Interestingly, click-through and affiliate nexus rules were in effect between 2012 and 2019. However, these were repealed with the introduction of economic and marketplace nexuses.

Physical Nexus

There are several ways to establish a physical nexus in California. One of the most common is to have an inventory or offices in California. However, if out-of-state businesses have representatives in California who take orders, make sales or deliveries, or install or assemble tangible personal property within California, that is considered a physical presence or nexus.

In addition, leasing equipment, including computer servers, in California also counts as having a physical presence there; thus, it establishes a physical nexus.

Economic Nexus

After the 2018 Wayfair decision, California introduced economic nexus. AB 147, signed on 25 April 2019, amended Revenue and Taxation Code section 6203 with effect from 1 April 2019. Remote sellers who sell tangible personal property to California consumers must register once they exceed the economic nexus threshold.

CDTFA first announced a threshold of USD 100,000 or 200 transactions. AB 147 replaced it, also from 1 April 2019, with a single test of USD 500,000 in total combined sales of goods for delivery in California, counting sales by related persons. There is no transaction count. An out-of-state seller above that in the preceding or current calendar year must register and collect California use tax.

Marketplace Nexus

The marketplace nexus went into effect on 1 October 2019 after California adopted the Marketplace Facilitator Act. A registered marketplace facilitator is treated as the retailer for all sales it facilitates, whatever each seller's sales volume.

Taxable Goods and Services in California

Any taxable person who sells to consumers in California must know what constitutes a taxable transaction. The general rule is that retail sales of tangible personal property are subject to sales tax.

Services are generally exempt from sales and use tax. However, if a service is part of the sale of tangible personal property, it may be taxable.

True Object of the Contract Test

Sometimes, it is difficult to determine whether a particular transaction involves the sale of tangible personal property or a service. The true object of the contract test helps determine whether the transaction is classified as a taxable sale or a non-taxable service. The primary factor is whether the buyer's main goal is to obtain the service itself or a tangible product resulting from that service.

If, after reviewing all the aspects of the transaction, the primary purpose is service, the transaction is non-taxable, even if some physical item is provided to the consumer as part of it.

E-Commerce Framework

When we say e-commerce framework or rules, we primarily refer to the rules and requirements for remote sellers who can be located in another US state or a foreign country and do not have a physical presence in California.

Remote sellers are subject to economic nexus rules: any individual or business whose total combined sales of tangible goods for delivery in California, including sales through marketplaces, exceed USD 500,000 in the preceding or current calendar year must register with CDTFA (a Certificate of Registration – Use Tax if it has no physical presence).

Once registered, the seller must collect and remit tax on all its taxable sales for delivery in California.

Nevertheless, remote sellers who sell tangible goods through the online marketplace could be subject to different or additional requirements.

Marketplace Rules

Remote sellers selling their goods through online marketplaces are considered marketplace sellers. If all their California sales are made through a registered marketplace facilitator, they are generally not required to register for a seller's permit or Certificate of Registration – Use Tax. The marketplace facilitator is responsible in this situation.

On the contrary, if marketplace sellers also make direct-to-consumer sales through their websites, they may be required to register for sales and use tax purposes. Therefore, marketplace and direct-to-consumer sales are relevant to determining whether the threshold has been exceeded.

Marketplace sellers who must register for sales and use tax must include all sales in their tax return, regardless of whether they were made directly to consumers or through the marketplace. However, they can deduct facilitated sales on the return (reported as an “other” deduction).

A requirement for marketplace sellers is to obtain and keep documents proving that marketplace facilitators are liable for sales and use tax. This can be achieved by concluding an agreement with the marketplace facilitator that indicates that the marketplace facilitator is registered for sales and use tax purposes as a retailer and is responsible for sales and use tax. Without such an agreement, any other document that states the same may serve as proof.

Digital Goods and Services

Digital goods such as software, data, digital books or e-books, mobile applications, and digital images are generally not taxable when transferred to consumers over the Internet. However, if only one part of the sale includes the provision of a printed copy of the digital product or a backup data copy on a physical storage medium, such as a USB, the entire transaction is usually taxable.

For example, the transaction is non-taxable if an e-book is purchased via the Internet and the consumer only downloads it. However, it is taxable if the consumer receives the e-book on a flash drive.

Selling canned or prewritten software, which is non-customizable, to consumers, where the whole transaction is completed by consumers downloading the software from a server, is generally not subject to tax. However, the same rule previously explained applies if a backup copy on the physical storage medium is provided to the consumer.

If the maintenance contract is mandatory with the purchase of canned or prewritten software, meaning that the consumer must accept it to buy or lease canned or prewritten software, the fees for the maintenance contract are taxable. If it is optional and includes storage media (for example, backup copies or updates on a disk), 50% of the lump-sum charge is taxable (Regulation 1502).

When the prewritten computer software is modified, the fees paid for such changes are not taxable if stated separately. If the consumer's costs for such modification are not stated separately, the modification fees are taxable as part of the sale of the prewritten program.

Digital Marketplace

California implemented the Marketplace Facilitator Act in 2019, establishing rules for marketplace facilitators. Under these rules and regulations, digital marketplace operators are generally considered facilitators.

Digital Platform Operator

For a marketplace to fall under the scope of the Marketplace Facilitator Act, it must sell or offer for sale tangible goods and products for delivery in California. A marketplace facilitator registered with CDTFA is the retailer for, and must collect and remit tax on, all retail sales for delivery in California made through its marketplace.

Marketplace facilitators must register as retailers if they have physical or economic nexus in California.

A marketplace facilitator must meet two conditions. First, it does at least one of these: transmits the offer or acceptance between buyer and seller; owns or operates the infrastructure that brings them together; provides a virtual currency buyers can or must use; or does software development or research and development directly related to the marketplace.

Second, it also does at least one of these: payment processing, fulfilment or storage, listing products for sale, setting prices, branding sales, order taking, advertising or promotion, or customer service and accepting or assisting with returns.

Since 1 January 2022 (AB 1402), registered marketplace facilitators are also responsible for certain fees on retail sales of specific items made through their marketplaces, and may need to register for them: the eWaste Fee, the California Battery Fee, the Lumber Products Assessment, and the California Tire Fee.

Filing and Payment Requirements in California

The California Department of Tax and Fee Administration, a tax governing body, regulates the filing frequency, which depends on the reported sales tax or anticipated taxable sales. The filing frequency is determined when registering for sales and use purposes and may be quarterly prepay, quarterly, monthly, fiscal yearly, or yearly.

State, local, and district sales and use tax returns are filed electronically on form CDTFA-401-A.

Penalties for Non-Compliance with Sales and Use Tax Requirements

If taxable persons do not file a tax return on time or make a late payment, they could face a potential penalty of 10% of the due tax for violating any of the deadlines. However, if a taxable person misses both deadlines, meaning they file a tax return late and make a late payment, the penalty is limited to 10% of the tax due for the reporting period.

For example, if the due tax is USD 10,000 for the reporting period, and the taxable person files a late return and makes a late payment, the 10% penalty applies for both violations. This means that the penalty in this case will be USD 1,000.

In addition to penalties, interest may be imposed for making a late tax payment. Interest is calculated for each month or a fraction of the late tax payment.

Taxable persons who pay on a prepayment basis face a 6% penalty if a prepayment is late but made before the return due date, and 10% if it is paid after the return due date. Interest is charged as well.

Those who fail to file a tax return may face penalties of 10% of the tax amount for each reporting period. An additional penalty of 25% applies if the CDTFA determines that the return was not filed due to fraudulent or evasion intentions. A 40% penalty can also apply when tax was collected from customers but not remitted, where the unremitted amount averages more than USD 1,500 a month.

For the specific rules on shipping goods outside the state, see our guide to California sales tax exemptions for out-of-state deliveries.

Source: CDTFA – Sales and Use Tax Rates, CDTFA – Tax Rates by County and City, CDTFA – Wayfair general information, CDTFA – Marketplace Facilitator Act, CDTFA – Sales and Use Tax Exemptions, CDTFA – Regulation 1502, CDTFA – Publication 75 (interest and penalties)