California Sales Tax on Services, Installation, etc California:


What purchases are taxable in California?

The taxability of various transactions (like services and shipping) can vary from state to state, as do policies on subjects such as whether excise taxes or installation fees included in the purchase price are also subject sales tax. This reference is here to help answer your questions about what is and is not subject to the California sales tax.

Section 1: Taxability of Goods and Services

What transactions are generally subject to sales tax in California?

California requires that a sales tax be collected on all personal property that is being sold to the end consumer for "storage, use, or consumprion" within the state of California. Most leases are considered "continuing sales" by California, and are thus also subject to sales tax.

Are services subject to sales tax in California?

California does not generally collect sales taxes on services. However, services which are "inseparable from the sale of a physical product" (such as setup of a purchased machine) and fabrication/assembly services (services which create tangible personal property) are considered taxable.

Installation and repair services are not generally considered taxable. Note that the whether or not any particular service provided, such as construction, falls into one of these two categories can be complicated and up for debate.

You can find a table describing the taxability of common types of services later on this page.


Are shipping & handling subject to sales tax in California?

California has very complicated rules when it comes to taxes on shipping. Depending on your situation, shipping charges can be either tax-exempt, partially taxable, or fully taxable.

For shipping to be non-taxable, you must mail the product directly to the customer via common carrier, not utilizing vehicles owned by the seller, transport the item only after the product has been sold, and invoice the cost of shipping separately from the cost of goods. It must be noted that the tax(separately stated on the invoice) does not apply to the transportation of items used in a land fill only if the taxes are considered to be "reasonable", it is received for the sole purpose of transporting the materials, or if it is transported without charge.

If you charge the customer more than the actual cost of thipping the item, the extra amount charged to the customer is subject to sales tax. Rolled-in handling costs are taxable under this provision.

If you don't keep accurate records of shipping costs, include delivery charges in the cost of the product, or deliver with your own vehicle your shipping charges may be fully taxable.


Are drop shipments subject to sales tax in California?

"Drop shipping" refers to the common business practice in which a vendor, often in a different state, makes a sale of a product which is shipped to the end-user by a third party supplier hired by the initial vendor. In California, drop shipments are generally exempt from sales taxes. The state of California does not usually allow any seller who legally has tax nexus to accept any sort of resale exemption from a customer who does not have tax nexus, in a situation where the seller drop ships a property to any in-state customer. If an out-of-state retailer, otherwise known as a true retailer, holds a permit, and it issues the drop shipper any resale certificate for the sale, the drop shipper is is not responsible for reporting or paying the tax


Section 2: Taxability of Various Items in California

This table shows the taxability of various goods and services in California. If you are interested in the sales tax on vehicle sales, see the car sales tax page instead. Scroll to view the full table, and click any category for more details.

Category Exemption Status
Amazon Purchases
Products on TAXABLE *
General Clothing TAXABLE *
Food and Meals
Catering TAXABLE *
Grocery Food EXEMPT *
Leases and Rentals
Motor Vehicles TAXABLE
Tangible Media Property TAXABLE
Manufacturing and Machinery
Machinery EXEMPT *
Raw Materials EXEMPT *
Utilities & Fuel EXEMPT *
Medical Goods and Services
Medical Devices EXEMPT *
Medical Services EXEMPT
Medicines TAXABLE
Newspapers and Magazines
Newspapers TAXABLE *
Periodicals TAXABLE *
Occasional Sales
General Occasional Sales EXEMPT
Motor Vehicles TAXABLE *
Optional Maintenance Contracts
General Optional Maintenance Contracts EXEMPT
Parts Purchased for Use in Performing Service Under Optional Maintenance Contracts TAXABLE
Pollution Control Equipment
General Pollution Control Equipment TAXABLE *
Janitorial Services EXEMPT
Transportation Services EXEMPT
Software and Digital Products
Canned Software - Delivered on Tangible Media TAXABLE
Canned Software - Downloaded EXEMPT *
Custom Software - Delivered on Tangible Media EXEMPT
Custom Software - Downloaded EXEMPT
Customization of Canned Software TAXABLE *
Digital Products EXEMPT
General Trade-Ins TAXABLE
Vending Machine Sales
Merchandise TAXABLE

* See notes in category taxability page for details

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** This Document Provided By SalesTaxHandbook **

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