Recently we broadly went over sales & use tax in California and that it applies to categories of tangible personal property that cover almost anything that residents and businesses will encounter in their daily life. There also happen to be several categories of tangible property exempt from sales & use tax, which means those types of goods are nontaxable for sales & use tax, depending on the circumstances.
Tangibly Exempt
California regulations will explicitly define categories of tangible property exempt from sales tax. Often it applies to broad categories of tangible goods but sometimes it can depend on circumstances of those goods such as the temperature (food for purchase) or who the seller or customer may be. Let’s take a look at some notable categories exempt from sales tax:
- Grocery food items
Very broad category of food items available at groceries are exempt from sales tax upon purchase. This would include things like bread, fruits, vegetables, frozen food items, candies, and bottled water. However, items you would also typically find at groceries like soda, alcohol, over-the-counter medicine, and hot prepared food to-go are still subject to sales tax.
- Cold food to go
On that note, all cold food items sold “to go” are exempt from sales tax. Examples would include deli food items that are not toasted and ice cream sold “to go”. It is why ice cream and deli places typically ask you if you want your cold food “for here” or “to go”. Sales tax applies to food eaten in a restaurant with seating provided, regardless of temperature.
- Prescription medication
Next time you pick up prescription medication, check your receipt if sales tax applies. In California, sales tax does not apply to medication prescribed by a doctor’s note. Over-the-counter medicine still has sales tax though.
- Labor
Labor costs such as the labor charges to install tires or fix a toilet are exempt from sales tax. However, these labor charges should be separately stated on an invoice, otherwise it may be considered taxable if it is lumped together with taxable goods into a single charge.
- Sales for resale
A business purchasing tangible inventory from a vendor for the intention of resale is exempt from sales tax. The business needs a resale certificate for their business records to show proof of intent to resell.
- Sales made to customers outside the state
A business in California making a sale of tangible property to a customer outside the state is exempt from sales tax. For example, a home based business selling skateboards online sells a skateboard to a customer in Wyoming. California sales tax does not apply because the customer is outside the state.
Businesses based and operating in California should be mindful of the taxability of their sales transactions. Owners know their plates are already full in running their business. Small and emerging business owners have come to rely on us here at MiklosCPA over the years to help with the accounting and tax needs that businesses in all industries may face. With our help, owners can then focus on what is most important, growing their business! Learn more how we can help your business by chatting with us. Also, like, share, and subscribe to our social media pages for more useful tax tidbits and other good-to-know articles.