Who is Eligible for the California Sales Tax Exemption?

California is among the majority of states that have a sales tax, and sales tax applies to most types of product sales. However, there are a number of exceptions, and these exceptions can apply either: (i) based on the type of product being sold; or, (ii) based on the identity of the buyer. Is your business, organization, or institution exempt from California’s sales tax? Here’s a brief introduction to what you need to know:

1. There are Numerous Product-Based Tax Exemptions

Product-based sales tax exemptions apply to a broad range of goods because the California Department of Tax and Fee Administration (CDTFA) has published a comprehensive guide titled, Sales and Use Taxes: Exemptions and Exclusions, and additional information is available on the CDTFA’s website. Many of the product-based exemptions are extremely specific; and, as a result, it is not unusual for businesses to sell a variety of exempt and non-exempt products. Some examples of California’s product-based sales tax exemptions include:

• Food “Sales of food for human consumption . . . unless sold in a heated condition (except hot bakery items or hot beverages, such as coffee, sold for a separate price), served as meals, consumed at or on the seller’s facilities, ordinarily sold for consumption on or near the seller’s parking facility, or sold for consumption where there is an admission charge.”
•  Cannabis – “The sale of medicinal cannabis, medicinal cannabis concentrate, edible medicinal cannabis products, or topical cannabis . . . when a qualified patient or primary caregiver for a qualified patient provides his or her medical marijuana identification card and a valid government-issued identification card.”
•  Public Utilities – “The sale of gas, electricity and water, including steam and geothermal steam, brines, and heat . . . if delivered through mains, lines, or pipes.”
• Gasoline – “The sale and purchase of gasoline is exempt from the 5 percent state sales and use tax.”

2. Certain Purchasers are Exempt from Paying

In addition to these product-based exemptions, California law provides that certain purchasers are exempt from the payment of sales tax as well. For example, the collection and remittance of sales tax are generally not required for transactions between wholesalers and retailers. Many non-profit and educational organizations and institutions are exempt from California sales tax as well.

3. Some Tax Exemptions are Only Partial Exemptions

While many products and purchasers are fully exempt from California sales tax, there are also some partial exemptions. These include partial sales tax exemptions for:

• Diesel fuel
• Farm equipment and machinery
• Racehorses
• Teleproduction and postproduction service equipment
• Timber harvesting

4. If You are Not Eligible for an Exemption, You Might Qualify for an Exclusion

Finally, if you are not eligible for a sales tax exemption, you might qualify for an exclusion. For example, California’s sales tax law states that “[l]eases of motion pictures, animated motion pictures, and television films and tapes (except video cassettes, tapes, and discs leased for private use under which the lessee does not obtain the right to license or broadcast) do not constitute sales,” and therefore are excluded from sales tax. Additionally, under California law, the following types of items and transactions are not considered sales of tangible property and therefore are not subject to sales tax:

• Admission charges
• Finance charges
• Lodging and travel accommodations
• Real property
• Securities

Speak with a California Sales Tax Lawyer at RJS Law

If you have questions about sales tax exemption eligibility or how to secure a sales tax exemption or exclusion, we invite you to get in touch. To request a complimentary consultation with a California sales tax lawyer at RJS Law, please call 619-595-1655 or tell us how to reach you online today.