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California has both a sales tax and a use tax. In addition to a statewide sales tax, there are additional taxes on sales in different California cities and counties. California also has various incentive-based exceptions to the usual tax rates and at least one peculiar distinction between the tax rate on food you eat in the restaurant and the rate on food you take out. The result is an often confusing set of tax rules. Often the easiest way to determine how much you owe in taxes on a particular purchase is to go to the California State Board of Equalization's website and plug in the address where the sale occurred. Even then, one or more exceptions need to be taken into account.
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Statewide Sales and Use Tax Rates
The statewide tax rate for both sales and use is 7.5 percent at the time of publication. The difference between the sales tax and the use tax is that the sales tax applies to all merchandise sales in the state, and the use tax applies to "the use storage or other consumption of those same kinds of items in the state."
Behind this seemingly innocuous statement is a complication some Californians discover when they get an unexpected bill from the California State Board of Equalization for an unpaid use tax that includes interest and penalties.
Assume you live in Oregon. You buy a car there, then shortly afterward move to California. Even though you lived out of state when you bought the car, you have a legal obligation to pay the California use tax on the vehicle. The amount is the same as the sales tax, but California calls this a use tax instead because in theory you're not being taxed on the sale of the car but on its use in the state.
Similar laws, all with slightly different deadlines for payment, exist for boats and even online purchases. Attempting to keep a car in the state without paying the use tax by renewing the out-of-state license is generally not a good idea. California's collection system for sales and
use taxes is notoriously efficient. The best way to resolve these problems without incurring a tax penalty and interest charges, particularly for big-ticket items, is to inquire at a Department of Motor Vehicles office if it's a vehicle or with the State Board of Equalization for other out-of-state purchases.
Local Sales Taxes
In addition to the statewide 7.5 percent sales tax, most regions -- cities or counties and sometimes both -- have added sales taxes. These rates constantly change. Thirty-nine California cities and three counties increased their tax rates in April 2015. The only reliable way of determining what the applicable tax is on a given purchase (other than trusting the seller to collect the appropriate amount) is to consult the State Board of Equalization's "Find a Sales and Use Tax Rate" chart and enter the address and ZIP code where the sale occurred. If you purchased a taxable item out of state -- a car or a boat, for example -- use your home address.
The California State Board of Equalization publishes "Sales and Use Taxes: Exemptions and Exclusions. " The latest available issue as of this writing was released in July 2014; its list of exemptions and exclusions is 42 pages long. The publication lists these under five categories: "I. Necessities of Life; II. General Public Benefit; III. Industry Benefit; IV. Exclusions by Definition; and V. Other Exemptions, Exclusions, or Credits."
Some of the exclusions have understandable societal aims. Many sales and uses related to the film industry, for example, have tax exemptions or partial exemptions designed to help the industry compete with Canada and other U.S. states that have offered incentives to encourage filmmakers to leave California. Sales of medicines are also excluded as well as a number of other medically related sales. Charitable organizations may be excluded, depending upon the circumstance.
Other exclusions are harder to justify and sometimes confusing to determine. If you order a sandwich in a deli and eat it there, it's taxable. If you take it out and it's unheated, it's not. But if you add hot gravy to your cold takeout, the sandwich becomes taxable again.