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Sales and Use Tax in California

Sales tax is the levy charged on the sale of goods and services, and the California Department of Tax and Fee Administration (CDTFA) calculates it as a percentage of the total purchasing price. The seller collects sales tax but remits it to the governing body that is charged with tax collection.

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

California Sales tax History

California first imposed its sales tax in 1933 at a rate of 2.5 percent. Since then, it has changed 19 times, and it currently stands at an average of 7.25%. However, the state of California only takes 6% of the sales. The remaining 1.25% is required to pay for the county funds.

As of April 25, 2019, the CDTFA requires sellers and related persons to collect use tax for all tangible products whose value exceeds $500,000. This came after the California Assembly passed Bill No.(AB) 147 (Stats. 2019, Ch. 5).

It’s good to note that the legislature in California has exempted some goods from sales tax. These tangible goods include food, prescribed medicines, some agricultural goods, household utilities, and equipment used in manufacturing.

California charges sales tax only on the retail sale of tangible and personal property. This means that materials that go into products, services, digital goods, and property that cannot be moved from one place to another are not subject to sales tax.

California Sales Rates

The sales tax rates in California vary across counties and cities. They range from 7.25% to 10%. The difference happens because some individual counties and cities also charge a sales tax. The additional sales tax that is collected goes towards several things, more so public transportation programs.

Los Angeles County increased its sales tax to raise money for curbing homelessness. These optional local sales taxes are known as Transactional and Use Taxes (TUTs).

How The Sales Tax is Used

After the state collects sales tax, it allocates the money to various state and local funds. The state general fund gets the lion’s share of approximately 4.2% of the 7.25%. It’s mainly spent on state programs. These programs include; health programs, education, and criminal justice.

Another 1% goes towards a local revenue fund which was established in 2011. The money in this fund is used for a state program known as public safety services.

The state has two other programs. One is the Local Public Safety Fund, which gets 0.5% to support local criminal justice activities. The other fund is the Local Revenue Fund that also gets 0.5% to support social service programs.

The remaining 1.05% of the 7.25% goes towards counties and cities for city and county programs, and a small percentage of the amount is used for public transportation. This fund is known as the Bradley-Burns rate.

Conclusion - Sales Tax

California boasts of having the most outstanding economy in the United States, with a GDP of $3.0 trillion. The sales tax plays a crucial role in financing major projects like the health sector and education. Hence, it can be viewed as the stem of the social contract between California citizens and the economy.

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