5. What is the difference between sales tax and use tax?
The California sales tax is imposed on all California retailers. It applies to all retail sales of tangible personal property in the state. Retailers making sales in the State of California are required to remit the sales tax to the Board of Equalization. Retailers are required to pay and report sales taxes to the Board of Equalization and they have the option of collecting sales tax reimbursement from their customers. Almost all retailers utilize this option. Whether or not a retailer collects the sales tax, the retailer is liable to remit the tax due.
The California use tax is imposed on consumers of tangible personal property that is used, consumed, or stored in this state. Use tax applies to purchases from out-of-state vendors that are not required to collect tax on their sales. Use tax also applies to most leases of tangible personal property.
The sales tax and the use tax are "mutually exclusive," which means either sales tax or use tax applies to a single transaction, but not both.
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6. Why would an out-of-state company charge me California sales or use tax?
Any out-of-state company that is "engaged in business" in the State of California must register with the Board of Equalization to collect use tax on their retail sales of tangible personal property to California customers.
"Engaged in business" can include:
A permanent or temporary office, distribution center, sales or sample room, warehouse, or other place of business in California.
Having a representative in California who makes sales, takes orders, installs merchandise, trains customers, or makes deliveries.
Receiving rental payments from the lease of tangible personal property that is located in California. There are many out-of-state companies not physically "engaged in business" in the State of California that make retail sales to California consumers. These companies usually solicit orders via the Internet or through mail order. Their only connection to California is shipping merchandise by U.S. mail or other common carrier to California customers.
Some out-of-state companies with no physical presence voluntarily register with the Board of Equalization as a courtesy to their California customers. They collect the California use tax from their California customers. This relieves California customers of their use tax liability, if they retain proof of their payment of use tax to the vendor. Once registered with the Board of Equalization the out-of-state company is legally obligated to collect the use tax. California consumers are advised to review their receipts from out-of-state companies to determine if they were charged California use tax. It is also important for customers to determine if they were charged the proper rate of tax for the area where they use, store or consume the merchandise. For example, if an Alameda County consumer was only charged 7.25 percent use tax on taxable merchandise, he/she would be liable for the remaining 1.00 percent tax on the purchase because Alameda County has an 8.25 percent sales and use tax rate.
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7. Can the Board of Equalization require out-of-state companies to register to collect California use tax?
It depends. If an out-of-state company is "engaged in business" in California they must register with the Board of Equalization to collect use tax on their retail sales of tangible personal property to California customers. However, if an out-of-state company is not "engaged in business" in California, U. S. Supreme Court cases have been interpreted to mean that the Board of Equalization is prohibited from requiring these companies to register to collect California use tax from their customers.
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