How Much Is Use Tax in California?

California’s tax system includes both sales tax and use tax. Use tax functions as a complementary levy to sales tax, ensuring that purchases made outside California, or from sellers not collecting California sales tax, are still subject to a similar tax burden when the items are used within the state. This mechanism helps maintain fairness for in-state retailers and supports state and local services.

Understanding California Use Tax

California use tax applies to the use, storage, or consumption of tangible personal property in California when sales tax was not paid at the time of purchase. This tax creates a level playing field between in-state and out-of-state purchases, preventing tax avoidance by bringing items into California from lower-tax jurisdictions.

Common situations triggering use tax include purchasing taxable items from an out-of-state retailer, including online, who does not collect California sales tax. It also applies to items brought into California for use, storage, or consumption after being purchased tax-free elsewhere. Additionally, use tax can be owed if a business purchases items for resale but then converts them for its own use.

Determining Your Use Tax Rate

The California use tax rate is the same as the sales tax rate in effect at the location where the purchased item is first used, stored, or consumed. California has a statewide sales and use tax rate of 7.25%. This statewide rate comprises a base rate and a mandatory local rate.

Beyond the statewide rate, numerous local jurisdictions within California have enacted district taxes, which are added to the state rate. These district taxes can vary significantly, leading to combined sales and use tax rates that range from 7.25% up to 10.25% or more depending on the specific city and county. To find the precise combined sales and use tax rate for a particular location, individuals can use the “Find a Sales and Use Tax Rate by Address” tool available on the California Department of Tax and Fee Administration (CDTFA) website. This tool provides the accurate rate based on the street address where the item will be used.

Calculating and Reporting Use Tax

Calculating the amount of use tax owed involves multiplying the item’s purchase price by the applicable sales and use tax rate for the location where it is used. The purchase price generally includes all costs except separately stated shipping and handling charges, unless the seller is required to collect tax on those charges. For example, if an item costing $100 is subject to a 9% combined sales and use tax rate, the use tax owed would be $9.00.

Individuals have two primary methods for reporting and paying California use tax. The most common method for personal purchases is to report the use tax directly on the California income tax return (Form 540). For purchases of individual items under $1,000, taxpayers can use an estimated use tax lookup table provided by the Franchise Tax Board, while purchases of $1,000 or more, or items for business use, require a specific use tax worksheet.

Alternatively, individuals can report and pay use tax directly to the California Department of Tax and Fee Administration (CDTFA) using their online services or by submitting a Consumer Use Tax Return (Form CDTFA-401-E). Certain purchases, such as vehicles, vessels, aircraft, mobile homes, and tobacco products, cannot be reported on the state income tax return and must be reported directly to the CDTFA. Retain purchase receipts and related documentation for accurate reporting and verification.