California Use Tax Information

Use Tax Basics

California's sales tax generally applies to the sale of merchandise, including vehicles, in the state. California's use tax applies to the use, storage, or other consumption of those same kinds of items in the state. Generally, if sales tax would apply when you buy physical merchandise in California, use tax applies when you make a similar purchase without tax from a business located outside the state. For example, you would owe use tax when:

  • You purchase something from a mail order catalog, the Internet, an online auction, television shopping network, etc. located outside California and you don't pay tax to that retailer.
  • You withdraw taxable merchandise from your business's resale inventory and use it for your personal or business use.
  • You purchase vehicles, vessels, mobile homes, and aircraft from sellers who do not hold seller's permits.

The California use tax is generally the liability of the purchaser and must be paid either directly to the seller from whom the physical merchandise was purchased or directly to the Board of Equalization (BOE) if the retailer is not required to collect and report California tax.

Use tax is not new. The California use tax law became effective on July 1, 1935.

The use tax is intended to protect California sellers who otherwise would be at a competitive disadvantage when out-of-state sellers make sales of goods to California customers without charging tax. The use tax also assures that all consumers in the state contribute fairly to the funding of state and local programs whether they choose to make purchases in California or outside the state.

Exemptions from Use Tax

Generally, the same types of items that are subject to sales tax are subject to use tax. Use tax does not apply to items specifically exempt from sales tax such as prescription medicines and most food items purchased at a grocery store. You can find a list of items the sale of which are not subject to sales or use tax in publication 61 Sales and Use Taxes: Exemptions and Exclusions.

Why some out-of-state retailers collect tax and others do not

An out-of-state company that is "engaged in business" in the State of California must register with the BOE to collect use tax on their retail sales of tangible personal property to California customers. Generally, an out-of-state company is "engaged in business" in California when they have a sales office, warehouse, or sales representative located in California, receive rental receipts from equipment located in California, or have some other physical presence in this state.

If a company is not "engaged in business" in California, they will generally not charge you California tax. However, some out-of-state companies with no physical presence voluntarily register with the BOE and collect tax as a courtesy to their California customers.

For more information, see Unregistered Out-of-State Businesses with Nexus in California.

Annual Reported Use Tax

Source

Period
Fiscal Year Ending (FYE)

Use Tax Reported
(in millions)

Registered with BOE

Use Tax Reported by Registered California Consumers (excluding Qualified Purchasers)

FYE 06/30/2013

$147

Use Tax Reported by Qualified Purchasers (service businesses)

FYE 06/30/2013

$47

Use Tax Reported by Registered Out-of-State Retailers

FYE 06/30/2013

$2,005

Use Tax Reported by Seller’s Permit Holders

FYE 06/30/2013

$1,517

Use Tax Assessed in Audits

FYE 06/30/2013

$107

     

Not Registered with BOE

Use Tax Reported on One-Time, Individual Use Tax Returns

FYE 06/30/2013

$4

Use Tax Reported on California Income Tax Returns

FYE 06/30/2013

$18

Use Tax Reported on Out-of-State Purchases of Vehicles, Vessels, and Aircraft

FYE 06/30/2013

$26

Use Tax Collected by DMV on Private Party Transactions

FYE 06/30/2013

$486

Use Tax Reported for Mobile Homes

FYE 06/30/2013

$3

Total

$4,360


Updated 02/2014