Tax Increase Frequently Asked Questions

Sales Tax Increase – Frequently Asked Questions

Frequently Asked Questions

What rate will I need to charge my customer?
Is the tax rate increase permanent?
How does the tax rate increase affect fixed-price contracts and fixed-priced taxable lease agreements entered into prior to April 1, 2009?
How does the tax rate increase affect partial tax exemptions?
What if I collect tax at the lower tax rate for sales made after April 1, 2009?
If a customer purchases merchandise before April 1, 2009 but returns it after that date, what tax rate should I use to refund the tax payment?
I will need to reprogram my cash registers and computers for the new sales tax rate. My system breaks out the amounts for state, county, local, and district taxes. Where should I account for the 1% tax rate increase?
I file my sales and use tax return on a calendar or fiscal yearly basis. The sales and use tax rate increase became effective in the middle of my reporting period. How will I report my sales using two different tax rates?
I electronically file (efile) my sales and use tax returns and prepayments. How will the sales and use tax rate increase affect my ability to efile?
My customer has already ordered items and has paid for them. They will possibly take possession of the merchandise after the tax rate increases. What tax rate applies?
I recently purchased an item from an out-of-state retailer who will ship the item from their out-of-state warehouse. It may be delivered after the tax rate increase takes effect. I know I need to report the use tax to the Board of Equalization, but what use tax rate applies?

What rate will I need to charge my customer?

For transactions prior to April 1, 2009, continue to charge the same sales and use tax rate(s) you are charging now. For transactions on or after April 1, 2009, the tax rate(s) you are charging now will increase by 1%. If you are in a city or county that has a voter approved local district tax rate increase effective on April 1, 2009, your overall tax rate increase will be higher. Please see New District Tax Rates to Take Effect on April 1, 2009.

For the current tax rates in your area, refer to Tax Rate – City & County. The combined statewide and district tax rates that apply as of April 1, 2009, are listed on the reverse side of the Statewide Sales and Use Tax Rate Increases on April 1, 2009.

Is the tax rate increase permanent?

No. The tax rate increase is effective April 1, 2009, through June 30, 2011.

How does the tax rate increase affect fixed-price contracts and fixed-priced taxable lease agreements entered into prior to April 1, 2009?

Fixed-price contracts or fixed-price taxable lease agreements other than mobile transportation equipment (MTE) are not exempt from the 1% tax rate increase. Consequently, the 1% tax rate increase will apply to such contracts and leases other than mobile transportation equipment.

There is currently pending legislation (AB 1523) to exempt fixed-price contracts from the 1% tax rate increase, but the outcome of that legislation is unknown at this time. BOE will update the content on this webpage if this legislation passes; but, until that time, current law should be followed.

Exception for mobile transportation equipment (MTE) - Lessors who elect to pay their use tax liability measured by the fair rental value of MTE must pay tax at the rate in effect at the time the equipment is first leased. The rate remains the same for all periods during which the equipment is leased, including all periods during subsequent leases of the equipment and during any period in which the tax rate is increased or decreased. (Regulation 1661, subdivision (b)(2)(B)).

How does the tax rate increase affect partial tax exemptions?

On and after April 1, 2009, the partial state tax exemption rate will increase to 6.25% from 5.25% for all of the partial state tax exemptions listed below:

Farm equipment and machinery (Revenue and Taxation Code section 6356.5)
Timber harvesting equipment and machinery (Revenue and Taxation Code section 6356.6)
Diesel fuel used for farming and food processing (Revenue and Taxation Code section 6357.1)
Racehorse breeding stock (Revenue and Taxation Code section 6358.5)
Property used in teleproduction and post production activities (Revenue and Taxation Code section 6378)

What if I collect tax at the lower tax rate for sales made after April 1, 2009

If you incorrectly collect sales tax reimbursement or use tax at the lower tax rate after April 1, 2009, you will still owe the 1% increase.

If a customer purchases merchandise before April 1, 2009 but returns it after that date, what tax rate should I use to refund the tax payment?

You should refund tax based on the rate in effect at the time of the sale (i.e., the amount you collected from the customer).

I will need to reprogram my cash registers and computers for the new sales tax rate. My system breaks out the amounts for state, county, local, and district taxes. Where should I account for the 1% tax rate increase?

The 1% increase will be allocated to the state portion of the tax rate. The combined 8.25% state, county, and local sales and use tax rate will be broken down as follows: state 7.25%, and local 1.00%. If you are in a city or county that has a voter approved local district tax, your combined tax rate will be higher.

Many of California's cities, counties, towns, and communities have special taxing jurisdictions (districts), referred to as district taxes, which impose a transactions sales and use tax in addition to the standard statewide rate of 8.25%.

For more information, please refer to publication 44, Tax Tips for District Taxes. Publications are available on our website or may be mailed to you by contacting our Taxpayer Information Section at 800-400-7115.

I file my sales and use tax return on a calendar or fiscal yearly basis. The sales and use tax rate increase became effective in the middle of my reporting period. How will I report my sales using two different tax rates?

You will be required to file a split rate sales and use tax return, which allows you to separate your sales, made prior to April 1, 2009 and report the sales or use tax at two different rates. The split rate sales and use tax return will also be available through the efile program to make this process simple.

I electronically file (efile) my sales and use tax returns and prepayments. How will the sales and use tax rate increase affect my ability to efile?

Your ability to efile will not be affected by the sales and use tax rate increase. Please continue to efile your sales and use tax returns and prepayments.

My customer has already ordered items and has paid for them. They will take possession of the merchandise after the tax rate increases. What tax rate applies?

A sale is deemed to occur when your customer takes title to, or possession of, an item. Consequently, the applicable tax rate is the rate in effect when the merchandise is delivered to the customer unless your contract specifically passes title to your customer at a different time. Thus, the current tax rate is the applicable tax rate if your sales contract specifically identifies and passes title of the items to your customer before the tax rate increase goes into effect.

If you do not pass title prior to delivery of the items, and you deliver the items after the effective date of the tax rate increase, the higher tax rate applies.

I recently purchased an item from an out-of-state retailer who will ship the item from their out-of-state warehouse. It may be delivered after the tax rate increase takes effect. I know I need to report the use tax to the Board of Equalization, but what use tax rate applies?

The use tax rate that applies is the use tax rate in effect when you receive the item. Generally, use tax does not apply until the property enters and is stored or used in California.