California is a home to many software and e-commerce companies, but it also has one of the more complex sales‑tax systems in the United States. This guide explains **when you must collect California sales tax (nexus)**, **which products and services are taxable**, and **how to comply** with registration and filing rules without drowning in jargon.

## 1. California Sales‑Tax Fundamentals

**Sales tax vs. use tax.** California imposes two complementary taxes administered by the **[California Department of Tax and Fee Administration (CDTFA)](https://cdtfa.ca.gov/taxes-and-fees/sutprograms.htm)**:

- **Sales tax** applies to retail sales of tangible personal property within California.
- **Use tax** applies to the use, consumption, or storage in California of tangible goods purchased out of state when sales tax was not charged.

From a remote seller’s standpoint, you collect “use tax,” but the rate, reporting, and payment process mirror sales tax, so this guide simply refers to both as _sales tax_.

**Base and local rates.** The statewide base rate is **7.25 %** (6 % state + 1.25 % mandatory local). Voter‑approved **district taxes** can raise the combined rate as high as **10.75 %** in certain cities. Always charge the rate that applies at the customer’s location (see Section 4 on sourcing). The CDTFA maintains the authoritative **[District Tax Rate Lookup](https://www.cdtfa.ca.gov/taxes-and-fees/rates.aspx)** so you can verify the current total rate by address.

> **Key point:** Tax you collect belongs to the state. Track it separately and remit it on time,penalties start at 10 % of the unpaid amount ([Publication 101](https://cdtfa.ca.gov/formspubs/pub101/)).

## 2. Nexus: When Are You Required to Collect?

You must register, collect, and remit California sales tax once you establish **nexus**,a significant connection to the state.

### 2.1 Physical nexus

Triggered by any physical presence, including:

- Office, store, warehouse, or fulfillment center in California.
- Employees, contractors, or sales reps working in the state.
- Inventory stored in a California facility (e.g., Amazon FBA).
- Company‑owned equipment or servers located in California.
- Trade‑show activity exceeding 15 days **or** \$100 000 in sales per year.

### 2.2 Economic nexus

Under **[Assembly Bill 147 (2019)](https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB147)**, a remote seller has nexus if **sales of tangible personal property delivered into California exceed \$500 000** in the current or previous calendar year. Cross the threshold and you must register immediately.

_Small‑seller relief_: If you have **no physical presence** and **< \$500 000** in California sales, you are not required to collect,monitor your sales so you can register promptly once you approach the limit.

For additional guidance, review CDTFA’s **[Wayfair & Remote Seller FAQ](https://www.cdtfa.ca.gov/industry/wayfair.htm)**.

## 3. What Is Taxable?

| Category                                                       | Taxable in CA?          | Notes                                                                                                                                                                |
| -------------------------------------------------------------- | ----------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| Tangible personal property (clothing, electronics, home goods) | **Yes**                 | Default rule; exemptions are limited (e.g., most groceries, prescription drugs).                                                                                     |
| SaaS (pure cloud access, no physical media)                    | **No**                  | Covered by **[Regulation 1502](https://www.cdtfa.ca.gov/lawguides/vol1/sutr/1502.html)**,software accessed via the cloud is a service, not a sale of tangible goods. |
| Digital downloads (e‑books, music, software)                   | **No**                  | Non‑taxable when delivered electronically without a physical copy.                                                                                                   |
| Services (consulting, custom software development)             | **No**                  | Installation labor may be taxable if part of a product sale.                                                                                                         |
| Bundled tangible + digital or SaaS                             | **Yes** (entire bundle) | Shipping any physical item can make the whole transaction taxable.                                                                                                   |

## 4. Rate Sourcing: Hybrid Origin/Destination Rules

California uses **modified‑origin sourcing**:

- **State, county, and city** portions follow the **origin**,your California place of business.
- **District taxes** follow the **destination**,the customer’s delivery address.

**Remote sellers** (economic‑nexus only) apply the **full destination rate**, including all district taxes. Use the CDTFA’s **[rate‑lookup tool](https://www.cdtfa.ca.gov/taxes-and-fees/rates.aspx)** to ensure accuracy.

## 5. Registering for a Seller’s Permit

1. **Apply online** via CDTFA’s **[seller‑permit portal](https://www.cdtfa.ca.gov/services/permits-licenses.htm)**.
2. Provide business details (entity type, EIN, addresses, projected sales).
3. Registration is **free**, though CDTFA may request a security deposit for high‑risk accounts.
4. Post the permit at any California business location.
5. Use your permit number to issue resale certificates on wholesale purchases.

For out‑of‑state sellers, CDTFA’s **[Publication 107](https://cdtfa.ca.gov/formspubs/pub107/)** offers additional registration guidance.

## 6. Collecting, Filing, and Remitting

| Step                | Action                                                                                                                                                                            |
| ------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| Configure platforms | Enable CA tax in your e‑commerce or billing software. For CA‑based sellers, combine origin base rate with destination district rate. Remote sellers charge full destination rate. |
| Filing frequency    | CDTFA assigns **monthly**, **quarterly**, or **annual** cadence based on tax volume.                                                                                              |
| File returns        | Report total and taxable sales, tax collected, and allocate by jurisdiction. File online through your CDTFA account.                                                              |
| Pay tax             | Remit electronically by the due date to avoid 10 % late penalties plus interest (see [Publication 101](https://cdtfa.ca.gov/formspubs/pub101/)).                                  |
| Zero returns        | File even if no CA sales occurred during the period.                                                                                                                              |
| Record‑keeping      | Retain records for **≥ 4 years**.                                                                                                                                                 |

## 7. Marketplace Facilitators

Since **1 October 2019**, large marketplaces (Amazon, eBay, Etsy, etc.) must **collect and remit CA tax on your behalf**. Their sales still count toward your \$500 000 threshold. If you sell both on marketplaces and direct, register once you exceed the threshold and collect on direct sales only. See CDTFA’s **[remote‑seller FAQ](https://www.cdtfa.ca.gov/industry/wayfair.htm)** for details.

## 8. Best Practices for Smooth Compliance

- **Monitor sales** against the \$500 000 threshold.
- **Automate calculations** turn on the tax engine in Stripe, Shipify or any other billing platform for California if you established nexus.
- **Subscribe to CDTFA updates**, local district rates change frequently.
- **Consider signing up for [Afternoon.co](https://afternoon.co?utm_source=blog)** We can put your sales tax on autopilot.

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## Official Resources

- [CDTFA Sales & Use Tax Overview](https://www.cdtfa.ca.gov/taxes-and-fees/sutprograms.htm)
- [CDTFA Seller’s Permit & Registration](https://www.cdtfa.ca.gov/services/permits-licenses.htm)
- [AB 147 (2019) – Marketplace Facilitator Act](https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB147)
- [CDTFA Wayfair & Remote Seller FAQ](https://www.cdtfa.ca.gov/industry/wayfair)
- [CDTFA District Tax Rate Lookup](https://www.cdtfa.ca.gov/taxes-and-fees/rates.aspx)
- [CDTFA Regulation 1502 – Computers, Programs & Data Processing](https://www.cdtfa.ca.gov/lawguides/vol1/sutr/1502.html)
- [CDTFA Publication 101 – Basic Sales & Use Tax](https://cdtfa.ca.gov/formspubs/pub101/)
- [CDTFA Publication 107 – Out‑of‑State Sellers](https://www.cdtfa.ca.gov/formspubs/pub107)

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