California Sales and Use Tax Skill v2.0

Section 1 -- Quick reference

Field	Value
Jurisdiction	California, United States
Jurisdiction code	US-CA
Tax type	Sales and Use Tax + District Taxes
State base rate	7.25% (minimum statewide)
Local add-on range	0.10% -- 3.25% district taxes
Maximum combined rate	~10.25% -- 10.75% (parts of Los Angeles, Alameda)
Sourcing	Destination-based (district taxes by ship-to address)
Economic nexus	$500,000 in total sales (revenue only, no transaction count)
Nexus test type	Revenue only -- highest threshold tied with Texas
Primary legislation	California Revenue and Taxation Code (R&TC), Division 2, Part 1
Tax authority	California Department of Tax and Fee Administration (CDTFA)
Filing portal	https://onlineservices.cdtfa.ca.gov
SST member	No
Return form	CDTFA-401-A (quarterly/monthly); CDTFA-401-EZ (small sellers)
Filing frequencies	Monthly, quarterly, annual (assigned by CDTFA)
Quarterly deadlines	Last day of month following quarter (Apr 30, Jul 31, Oct 31, Jan 31)
Prepayment	Required if average monthly tax liability exceeds $17,000
Vendor discount	None -- California does not offer a vendor collection allowance
Federal framework skill	us-sales-tax (read first for Wayfair, nexus overview, multi-state context)
Skill version	2.0

---

Section 2 -- Required inputs and refusal catalogue

Required inputs

Before performing any California sales tax work, collect the following:

#	Question	Why it matters
1	California Seller's Permit number?	Required for filing; confirms registration with CDTFA
2	Assigned filing frequency (monthly, quarterly, annual)?	Determines return due dates and prepayment requirements
3	Nexus type (physical, economic, both)?	$500,000 threshold for economic nexus
4	Sell through marketplace facilitators (Amazon, eBay, Etsy)?	Marketplace facilitators collect on facilitated sales
5	Primary business address / point of sale location?	Needed for district tax rate determination on counter sales
6	Ship goods to California customers? From where?	Destination-based sourcing for district taxes
7	Sell food, software/SaaS, or manufacturing equipment?	Special exemption or taxability rules
8	Average monthly tax liability exceed $17,000?	Prepayments due 24th of first and second month of quarter

If the client cannot answer questions 1-3, STOP and gather this information before proceeding.

Refusal catalogue

R-CA-1 -- Cannabis taxation. Cannabis excise tax and cultivation tax have separate compliance requirements outside this skill. Escalate to a licensed tax professional.

R-CA-2 -- Fuel and motor vehicle tax. Fuel excise taxes and motor vehicle fee-for-service are administered separately. Outside scope.

R-CA-3 -- Timber yield tax. Separate tax regime. Outside scope.

---

Section 3 -- Transaction pattern library

This is the deterministic taxability lookup. When a transaction matches a pattern below, apply the listed treatment. Do not second-guess.

3.1 Tangible personal property (TPP)

Pattern	Taxable?	Rate	Notes
General TPP (electronics, furniture, appliances, equipment, jewelry, sporting goods, office supplies)	TAXABLE	7.25% + district	R&TC Section 6051
Building materials	TAXABLE	7.25% + district
Vehicles (private party)	TAXABLE	7.25% + district	Separate use tax filing via DMV

3.2 Food and beverages

Pattern	Taxable?	Citation
Grocery food (cold, unheated, for off-premises consumption)	EXEMPT	R&TC Section 6359
Hot prepared food	TAXABLE	R&TC Section 6359(d)(2)
Food sold with eating utensils by vendor	TAXABLE	R&TC Section 6359(d)(1)
Food sold at restaurants (dine-in or to-go if heated)	TAXABLE	R&TC Section 6359
Carbonated beverages / soft drinks	TAXABLE	R&TC Section 6359(c)
Candy	TAXABLE	R&TC Section 6359(c)
Bottled water (non-carbonated, non-flavored)	EXEMPT
Alcoholic beverages	TAXABLE
Snack foods (chips, crackers -- cold, unheated)	EXEMPT	Treated as grocery food
Dietary supplements	EXEMPT	R&TC Section 6359(c)
Ice	EXEMPT

3.3 Clothing and footwear

Pattern	Taxable?	Notes
All clothing and footwear	TAXABLE	California has NO clothing exemption
No sales tax holiday	N/A	California does not hold sales tax holidays

3.4 SaaS and digital goods

Pattern	Taxable?	Notes
Canned software (physical media)	TAXABLE	TPP -- R&TC Section 6010.9
Canned software (electronic download with permanent right)	TAXABLE	Regulation 1502.1
Custom software (delivered electronically)	EXEMPT	Not TPP per Regulation 1502.1(a)(3)
SaaS (cloud-hosted, no download, no transfer of TPP)	NOT TAXABLE	No transfer of TPP; CDTFA has not taxed pure SaaS
Streaming services (no download)	NOT TAXABLE	No transfer of TPP
Digital music/movies/books (permanent download)	TAXABLE	Transfer of TPP equivalent
Digital music/movies/books (streaming only)	NOT TAXABLE

3.5 Services

Pattern	Taxable?	Notes
Professional services (legal, accounting, consulting, medical, engineering)	NOT TAXABLE	Not a sale of TPP
Repair labor (separately stated from parts)	NOT TAXABLE	Labor separately stated is exempt
Repair parts	TAXABLE	TPP
Fabrication labor (producing a new product to customer spec)	TAXABLE	Fabrication labor is taxable; R&TC Section 6006(b)
Installation labor (after sale of TPP, separately stated)	NOT TAXABLE	If separately stated
Telecommunications	Separate taxes	Subject to utility users tax, not standard sales tax

3.6 Manufacturing and industrial

Pattern	Taxable?	Notes
Manufacturing equipment (used directly in manufacturing)	PARTIAL EXEMPTION	R&TC Section 6377.1 -- state rate reduced; district tax may still apply
R&D equipment	PARTIAL EXEMPTION	Same partial exemption program
Utilities for manufacturing	PARTIAL EXEMPTION	Same program
Farm equipment and machinery	PARTIAL EXEMPTION	R&TC Section 6356.5
Raw materials/ingredients for manufactured products	EXEMPT (resale)	Purchased for resale as component of finished product

3.7 Common exemptions

Pattern	Exempt?	Citation
Resale (valid resale certificate)	EXEMPT	R&TC Section 6091
Interstate commerce (shipped out of state)	EXEMPT	R&TC Section 6396
US government purchases	EXEMPT	R&TC Section 6381
California state/local government	EXEMPT	R&TC Section 6381.5
Prescription medicine	EXEMPT	R&TC Section 6369
OTC drugs and medicine	TAXABLE	No OTC exemption in California
Newspapers and periodicals	EXEMPT	R&TC Section 6362
Containers and packaging (for resale goods)	EXEMPT	R&TC Section 6364

---

Section 4 -- Rate lookup

4.1 State rate components

Component	Rate
State General Fund	3.9375%
State Fiscal Recovery Fund	0.25%
Local Revenue Fund (county)	1.0625%
Local Public Safety Fund	0.50%
County Transportation Fund	0.25%
State Education Protection Account	0.25%
Proposition 30/55 Fund	1.00%
Total statewide minimum	7.25%

4.2 Key combined rates

Jurisdiction	Combined rate	Breakdown
Los Angeles (City)	~10.25%	7.25% + 2.25% + 0.75% district
San Francisco	~8.625%	7.25% + 1.375% district
San Jose	~9.375%	7.25% + 2.125% district
San Diego (City)	~7.75%	7.25% + 0.50% district
Sacramento (City)	~8.75%	7.25% + 1.50% district
Oakland	~10.25%	7.25% + 3.00% district
Fresno	~8.975%	7.25% + 1.725% district

4.3 District tax sourcing

Scenario	Rate applied
Shipped goods	District tax at delivery address (destination-based)
Counter sales / customer pickup	Rate at seller's location
Out-of-state seller shipping to CA	District tax at delivery address

Always use CDTFA rate lookup tool for exact rate: https://www.cdtfa.ca.gov/taxes-and-fees/rates.aspx

---

Section 5 -- Classification rules

5.1 General rule

California imposes sales tax on the retail sale of tangible personal property unless a specific exemption applies. R&TC Section 6051. Services are generally NOT taxable unless they involve fabrication of a new product or transfer of TPP.

5.2 Partial exemption for manufacturing (M&E)

Parameter	Detail
Scope	Machinery, equipment, and parts used primarily (50%+) in manufacturing, R&D, or electric power generation
Benefit	State portion partially exempted; buyer pays reduced state rate + full district tax
Certificate	CDTFA-230-M (Partial Exemption Certificate for Manufacturing)
Authority	R&TC Section 6377.1

5.3 Resale exemption

Parameter	Detail
Certificate	CDTFA-230 (Resale Certificate)
Requirement	Buyer must hold California Seller's Permit or be an out-of-state retailer
MTC certificate	Accepted
SST certificate	California is NOT an SST member
Blanket certificates	Permitted for ongoing purchases

5.4 Use tax

Rule	Detail
When applies	TPP purchased from out-of-state seller without CA tax; TPP purchased tax-free and diverted to taxable use
Rate	Same as sales tax rate at location of use
Credit	Credit for tax paid to other states (R&TC Section 6406)
Individual reporting	Schedule G on Form 540 (income tax return)

---

Section 6 -- Return form and filing

6.1 Filing forms

Form	Name	Use
CDTFA-401-A	Sales and Use Tax Return	Standard return
CDTFA-401-EZ	Short Form	Small sellers with no adjustments
CDTFA-531	Schedule of District Taxes	District tax detail (auto-populated online)

6.2 Filing frequency

Frequency	Criteria	Due date
Quarterly	Most sellers	Last day of month following quarter
Monthly	Tax liability > assigned threshold	Last day of following month
Annual	Very small sellers	January 31

6.3 Quarterly due dates

Quarter	Period	Due date
Q1	January 1 -- March 31	April 30
Q2	April 1 -- June 30	July 31
Q3	July 1 -- September 30	October 31
Q4	October 1 -- December 31	January 31

6.4 Prepayment requirements

Parameter	Value
Threshold	Average monthly tax liability exceeds $17,000
Due dates	24th of first and second month of each quarter
Amount	At least 90% of actual liability for the month

---

Section 7 -- Thresholds, penalties, and deadlines

7.1 Economic nexus

Parameter	Value
Revenue threshold	$500,000 in total sales delivered to California
Transaction threshold	None -- revenue only
Measurement period	Preceding or current calendar year
Effective date	April 1, 2019
Sales included	Total sales, including exempt sales
Marketplace exclusion	Marketplace sales facilitated by a marketplace provider may count toward threshold
Authority	R&TC Section 6203(c)(4)

7.2 Marketplace facilitator rules

Rule	Detail
Effective date	October 1, 2019
Obligation	Marketplace facilitators with $500K in CA sales must collect
Seller relief	Sellers relieved for facilitated sales
Authority	R&TC Section 6042

7.3 Penalties and interest

Penalty	Rate	Citation
Late filing (1-30 days)	10% of tax due	R&TC Section 6591
Late payment	10% of tax due	R&TC Section 6591
Negligence	10% of deficiency	R&TC Section 6484
Fraud	25% of deficiency	R&TC Section 6485
Interest	Adjusted quarterly by CDTFA	R&TC Section 6591.5

7.4 Record retention

Parameter	Value
Period	Minimum 4 years from filing date or due date (whichever is later)
Records	Sales invoices, purchase records, exemption certificates, bank statements, POS data, shipping records

7.5 Statute of limitations

Scenario	Period
Standard assessment	3 years from filing or due date
Substantial understatement (25%+)	8 years
No return filed	No limitation
Fraud	No limitation

---

Section 8 -- Edge cases

EC1 -- SaaS vs. downloaded software

Situation: Business purchases software that is partly cloud-based and partly downloaded.

Resolution: If the software requires a download or local installation, the downloaded component is taxable as TPP. If purely accessed through a browser with no download, it is not taxable. Hybrid products require analysis of the primary function.

EC2 -- Fabrication labor vs. repair labor

Situation: A shop builds a custom metal part for a customer.

Resolution: Fabrication labor (creating a new product to customer specifications) is TAXABLE under R&TC Section 6006(b). Repair labor (fixing an existing item) is NOT taxable if separately stated from parts. The distinction is whether a new product is being created.

EC3 -- Manufacturing partial exemption

Situation: Manufacturer purchases a $100,000 machine used 60% for manufacturing, 40% for administration.

Resolution: Qualifies for partial exemption because manufacturing use exceeds 50%. The state portion is partially exempted. Full district tax still applies at the delivery location rate.

EC4 -- Food: grocery vs. prepared

Situation: Bakery sells cold sandwiches and hot soup from the same counter.

Resolution: Cold sandwiches sold without eating utensils provided by the seller are EXEMPT as grocery food. Hot soup is TAXABLE as prepared food. Each item classified separately. If the seller provides eating utensils, all food becomes taxable.

EC5 -- Drop shipments

Situation: Out-of-state retailer directs a California manufacturer to ship to a California customer.

Resolution: The California manufacturer must collect tax unless the retailer provides a valid resale certificate. If the retailer is not registered in California, the manufacturer should collect tax on the retail price. Complex area requiring careful certificate management.

---

Section 9 -- Test suite

Test 1 -- Basic taxable sale in Los Angeles

Input: Retailer sells a $1,000 TV in Los Angeles. Combined rate: 10.25%. Expected: Tax = $102.50. Total = $1,102.50.

Test 2 -- Grocery food exempt

Input: Customer purchases $200 of cold groceries (produce, dairy, bread) at a supermarket. Expected: Tax = $0. Grocery food is exempt.

Test 3 -- SaaS not taxable

Input: San Francisco business subscribes to cloud-based project management tool. $150/month. No download. Expected: Not taxable. Pure SaaS without download is not TPP in California.

Test 4 -- Economic nexus

Input: Oregon-based online seller has $600,000 in California sales. No physical presence. 50 transactions. Expected: Exceeds $500,000 threshold. Must register with CDTFA and collect California sales tax.

Test 5 -- Clothing fully taxable

Input: Customer buys a $300 jacket in San Francisco. Rate: 8.625%. Expected: Tax = $25.88. No clothing exemption in California.

Test 6 -- Resale certificate

Input: Retailer purchases $15,000 of inventory from a CA wholesaler. Provides valid CDTFA-230. Expected: No tax. Retailer collects tax at point of resale.

Test 7 -- Use tax on out-of-state purchase

Input: Los Angeles business purchases $5,000 of office furniture from an Oregon retailer. No tax collected. Expected: Use tax = $512.50 ($5,000 x 10.25%).

Test 8 -- Hot prepared food

Input: Customer buys a $12 hot meal from a deli counter in Sacramento. Rate: 8.75%. Expected: Tax = $1.05. Hot prepared food is taxable.

Test 9 -- Manufacturing equipment partial exemption

Input: Manufacturer purchases a $200,000 production machine in San Jose. Used 100% in manufacturing. Expected: Partial exemption applies to state portion. District tax still applies. Effective tax rate is reduced compared to full combined rate.

Test 10 -- Canned software download

Input: Business purchases a $500 canned software license via electronic download in San Diego. Rate: 7.75%. Expected: Tax = $38.75. Downloaded canned software is taxable as TPP.

---

Section 10 -- Prohibitions

• NEVER apply a clothing exemption in California -- clothing is fully taxable at all times.
• NEVER treat pure SaaS (cloud-only, no download) as taxable -- California has not extended sales tax to pure SaaS.
• NEVER confuse fabrication labor (taxable) with repair labor (not taxable if separately stated).
• NEVER forget district taxes -- the 7.25% state rate is only the minimum; most locations have additional district taxes.
• NEVER use origin-based sourcing for district taxes -- California is destination-based for district taxes.
• NEVER assume the manufacturing partial exemption fully eliminates tax -- it reduces the state portion but district taxes still apply.
• NEVER accept SST certificates in California -- CA is not an SST member.
• NEVER forget the prepayment requirement for sellers with average monthly liability over $17,000.
• NEVER treat OTC drugs as exempt -- only prescription medicine is exempt in California.
• NEVER compute any number -- all arithmetic is handled by the deterministic engine, not Claude.

---

Disclaimer

This skill is provided for informational and computational purposes only and does not constitute tax, legal, or financial advice. All outputs must be reviewed by a qualified professional (CPA, EA, or tax attorney) before filing.

---

Disclaimer

This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional (such as a CPA, EA, tax attorney, or equivalent licensed practitioner in your jurisdiction) before filing or acting upon.

The most up-to-date, verified version of this skill is maintained at openaccountants.com. Log in to access the latest version, request a professional review from a licensed accountant, and track updates as tax law changes.