Taxes seem to be everywhere and with every thing in California. Sales tax is a type of transaction tax we often encounter in the sale of assorted goods. Sales tax rules in California operate similarly to other states, but here are some notable pieces to remember in the golden state, whether as a retailer or a customer in California.
Tangible Personal Property
For the most part, unless there is a specific exemption, sales tax applies to the sale of all tangible personal property. Tangible personal property can be basically thought of as all physical personal property that aren’t considered real estate, so it’s a broad category of things like furniture, cars, computers, tools, and food.
Exemptions to Sales Tax
In California, there are certain groups of tangible personal property that are exempt from sales tax. Common examples include groceries, prescription medication, and labor, such as fixing a car. Of course, as you delve further into these categories and sales tax law in California, you start to discover the technicalities that CAN make a sale taxable. Examples include hot prepared food for sale to-go (but not cold food to-go), over-the-counter medicine, and fabrication labor. To illustrate, here’s an example:
Bob goes to his local convenience store. They sell cold, ready-to-heat burritos and have a microwave on the premises for customers to use after purchasing. Selling the burrito is non-taxable since it is purchased as a cold food item. Bob can decide if he wants to warm it up there or not. However, if for whatever reason, the employee decides to heat up the burrito, then sell it to Bob, the burrito technically becomes taxable because it’s now considered hot prepared food (by the employee) sold to a customer.
Sales Tax Rates in California
Statewide, the current California sales tax rate sits at 7.25%. Counties and cities often apply voter-approved measures that add to the base state rate, thereby increasing their area’s total sales tax rate. In some parts of the state, the sales tax rate can noticeably fluctuate. For example, the rate in the city of Long Beach is currently at 10.25%. Drive northeast a few miles into the city of Buena Park and the tax rate dips down to 7.75%. While that extra 2.5% in Long Beach may not be very significant on buying food from your favorite restaurant, it can become more noticeable if you buy big-ticket items like furniture or vehicles.
Tax rates and tax laws seem to operate in constant flux. Business owners may often have a hard time keeping up to date. Having a team to support and guide owners on questions of tax and accounting helps owners focus on their business goals and ambitions. MiklosCPA is a California-based accounting firm that helps small and emerging businesses with their accounting and tax needs. If you wish to know more of our services, contact us. Also, follow our social media accounts for future good-to-know blog posts like this one!