California Sales Tax Exemptions

What is a sales tax exemption?

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What You Need to Know about California's Sales & Use Tax

Exemptions by Industry

• Manufacturers
• Software
• Agriculture

Sales Tax Compliance FAQs

What You Need to Know about California’s Sales & Use Tax

The state of California currently levies a 7.25% state sales tax rate. Between January 1, 2013 and December 31, 2016 the state sales tax rate was 7.5%. The reduction to the current 7.25% rate took effect on January 1, 2017. The temporary 4-year increase in the state sales tax rate was a result of the increase passed under Proposition 30 which was on the November 6, 2012 ballot for California votes. The initiative was approved by 55.4% of voters. See below for more detailed information about relevant California sales tax exemptions and use tax.

Counties & local municipalities also levy their own sales taxes in addition to the state rate. Currently, California’s combined sales tax rates range between 7.25% and 9.75%. The combined rate includes state, district, county and city sales tax.

Use tax is applied on the same basis and at the same rates as sales tax is within the state of California. For monthly-filers, returns are due on or before the last day of the month following the month in which the purchases were made. For example, purchases made in the month of January should be filed with the state of California on or before the last day of February.

Manufacturing Sales Tax Exemptions in California

Effective July 1, 2014, the state of enacted a new California sales and use tax exemption for purchases of manufacturing machinery and equipment as well as research and development (R&D) equipment. The exemption is currently in place between 7/1/2014 and 6/30/2022. This is a partial sales and use tax exemption from the state rate, not a complete exemption.

One other prominent exemption for the manufacturing industry is for items consumed in the production process that become an ingredient or component part of the final product. Other than these two exemptions, there are few other California sales tax exemptions for the manufacturing industry.

Please reach out to our sales tax consultants for help to maximize the benefit your organization receives from California’s sales tax exemptions.

Software & SaaS Sales Tax Exemptions in California

As a result of the Court of Appeal’s decision in Nortel Networks, Inc. v. State Board of Equalization (2011) the purchases of many non-custom software programs are not subject to California sales tax. Most off-the-shelf or boxed software will not qualify for the exemption because the seller must hold the patent or copyright or licensing interests. Qualifying purchases are designated as Software Technology Transfer Agreements or TTA’s.

Agile Consulting Group’s sales tax consultants can advise about which particular software programs will qualify as TTA’s and will assist in communicating with vendors to both set up future transactions as tax exempt and recover sales taxes charged in error over the prior 36 months.

Agriculture Sales Tax Exemptions in California

The agriculture industry also enjoys partial California sales tax exemptions. Purchases of specific farm machinery and equipment for businesses classified under North American Industry Classification System (NAICS) codes 0111 to 0291 qualify under this exemption. There is a broad list of items qualifying for this partial exemption.

Additional Guidance on California Sales and Use Tax

Sales Tax Compliance FAQs

Sales tax compliance can be intimidating, but it doesn't have to be!

Find the sales tax exemptions for your state

Select any state in the map below to view all relevant sales and use tax information available for that state.