One of the common questions our clients asked is how to correctly charge California Sales Tax. A lot of people thought that they are required to charge sales tax based on the destination rate. This is not true!
The following is a quote from California BOE Publication 105, entitled District Taxes and Delivered Sales:
If you are engaged in business in a special taxing jurisdiction, you must report district taxes on Schedule A of your sales and use tax return. The total tax rate in effect in a special tax district (statewide rate + district rate) generally applies to sales delivered or shipped into the district. However, if you are not engaged in business in the district, you are not required to collect the district use tax. Instead, you may calculate the tax due on your sale at the statewide rate. Generally, if you are not engaged in business in a special tax district and you ship by common carrier into the district, your customer is liable for the district use tax. As a courtesy to your customer, you may choose to collect the district use tax from them.
The above publication provides two options for charging sales tax on sales of tangible goods: (1) Collect the taxes for the counties, city and special districts in which your business has a physical presence, or (2) collect taxes for all the counties and cities districts to which you ship goods.
The first collection option is what California merchants are required to do. If your company has no presence in the destination jurisdiction or district, you only need to collect the statewide tax. If the delivery address is within the same jurisdiction as your business, you need to collect all applicable state, county and city district sales tax rates for
the delivery address.
The second collection option is based on destination, regardless of where the seller is located. If the destination is in the same jurisdiction as your company, you collect the applicable statewide, county and city district sales taxes that you are required to pay. If the destination is outside your business’ jurisdiction, in addition to the statewide tax, you also collect and pay any applicable county and city district taxes payable there as a courtesy to your customer.
Following is an example of the sales tax rate for each option:
XYZ Auto Parts is located in the city of San Jose, Santa Clara County. It ships a part to a customer in the city of El Monte, Los Angeles County.
Under the first option, XYZ is required to collect the 7.50% statewide sales tax only.
Under the 2nd option, XYZ will collect the following state and district sales taxes:
Los Angeles County: 1.5%
City of El Monte: 0.50%
There are some exceptions for collecting sales tax. Please see full details published on Board of Equalization’s website .
I hope the above example explains the 2 different options you can consider for charging California Sales Tax. Online Image has developed a cutting-edge API product called US Geocoder California Sales Tax API to accommodate these two collection methods. It produces real time sales tax rate for any given California address with 100% sales tax law compliance. All you need to do is to provide delivery address and we return real time sales tax rate! It can be easily integrated with any online store or online shopping cart program. Please go to USgeocoder.com to find out how this unique product keeps you compliant with California Sales tax law!