Publication 109, Internet Sales
- Basic Internet Sales and Leases
- Non Taxable Sales
- Additional Information
Yours may be among the many businesses taking advantage of changing technology to market products over the Internet. Despite all of the publicity surrounding Internet commerce, one essential fact is often overlooked—there is no general tax exemption for sales made over the Internet. This publication is intended to help you determine if you must pay California’s sales and use taxes on your Internet sales.
Businesses physically located in California
If your business is located in California, your Internet sales of physical products are generally taxable unless they qualify for a specific tax exemption or exclusion (see Non Taxable Sales). Internet sales are treated just like sales you make at retail stores or other outlets, through sales representatives, over the telephone, or by mail order. You can register on our website at www.boe.ca.gov by selecting New Registration, and then select Register a business activity with BOE. You can also register in person at any of our field offices. Please contact our Customer Service Center for assistance at 1-800-400-7115 (TTY:711).
Businesses located outside of California
If your business is located outside of California, your sales of physical products delivered to California locations are generally subject to the state’s use tax. While your customers are responsible for the use tax, you must collect it from them and pay it to us if you:
- Have a permanent or temporary business location in California, including a warehouse, sales room, or office; or you
- Have any kind of representative or agent in the state, even temporarily, who makes sales, takes orders, installs or assembles merchandise, or makes deliveries for you.
If either of the conditions above applies to your operations, you are required to register with the BOE and obtain a Certificate of Registration—Use Tax Account. You can register on our website at www.boe.ca.gov by selecting New Registration, and then select Register a business activity with BOE. You can also register in person at any of our field offices. Please contact our Customer Service Center for assistance at 1-800-400-7115 (TTY:711). If you do not register and collect the use tax, your customers must pay the tax directly to us (see “Voluntary collection . . .,” below).
Special case—leases: Even if the criteria above do not apply to your business, generally, you must register, collect, and pay use tax on payments you receive from the lease of merchandise including vehicles, vessels and aircraft, located in California. This is true whether you negotiate the lease over the Internet or by any other means.
The use tax rate is the same as the sales tax rate for any given California location; please see California City and County Sales and Use Tax Rates. Transactions that are exempt from sales tax are usually exempt from use tax.
Voluntary collection of use tax
As noted above, your customers must pay the use tax to us if you do not collect it from them. You may wish to voluntarily register and collect the use tax as a customer service even if you are not required to do so.
Prepaid Mobile Telephony Services Surcharge
If you are an out-of-state business that sells or ships prepaid wireless phone cards and services to California customers, you must register with the BOE as a prepaid MTS seller, collect the surcharge from customers, and pay the amounts collected to the BOE.
Beginning January 1, 2016, sellers of prepaid wireless phone cards and services are required to collect a prepaid mobile telephony services (MTS) surcharge from customers and pay it to the BOE for all retail transactions occurring in this state. The surcharge is imposed as a percentage of the sales price of prepaid wireless cards/services sold in retail transactions occurring in this state. If you are an out-of-state retailer, your sales of prepaid wireless services and products to consumers are considered to occur in California when one of the following applies:
- The item is shipped to, or picked up by, a customer at a California location.
- Your records show that the customer’s address is in California.
- Your customer provided you with an address in California during the sales transaction.
- The mobile phone number is associated with a California location.
If your sales of prepaid wireless products and services occur in California (as stated above), you must register with the BOE as a prepaid MTS seller. The prepaid MTS account is a separate account from a seller’s permit for the sales of tangible personal property.
For more information about this program, please read our guide Prepaid Mobile Telephony Services (MTS) Surcharge.
Note: This publication summarizes the law and applicable regulations in effect when the publication was written, as noted above. However, changes in the law or in regulations may have occurred since that time. If there is a conflict between the text in this publication and the law, decisions will be based on the law and not on this publication.
Some Internet sales are not taxable
Common exempt transactions
Some of your Internet sales—including sales for resale, sales of cold food products, and sales delivered outside of California—may not be subject to California sales or use tax. Common exemptions are described in publication 73, Your California Seller’s Permit. More detailed information is found in publication 61, Sales and Use Taxes: Exemptions and Exclusions.
Products electronically transmitted to customers
Your sale of electronic data products such as software, data, digital books (eBooks), mobile applications, and digital images is generally not taxable when you transmit the data to your customer over the Internet or by modem. However, if as part of the sale you provide your customer with a printed copy of the electronically transferred information or a backup data copy on a physical storage medium such as a CD-ROM, your entire sale is usually taxable.
An eBook is an electronic version of a traditional print book that can be read by using a tablet computer or by using an eBook reader. Users can purchase an eBook on diskette or CD, but the most popular method of getting an eBook is to purchase a downloadable file of the eBook without purchasing any physical storage medium. A mobile application, also known as a “mobile app”, is computer software designed for use on a smartphone or tablet computer. The transfer of a downloadable file such as an eBook or an “app” without purchasing any physical storage medium is not a taxable transaction.
If your company sells canned (noncustom) software programs to customers who download them from a server, those sales are generally not subject to tax. However, if you also provide your customers with a backup copy on a CD-ROM, the entire transaction is taxable. Similarly, if you transmit a stock (noncustom) database to your customer over the Internet and also provide a printed copy of the contents, the entire sale is subject to tax. For more information regarding the sale of computer programs and data processing services, you may wish to obtain a copy of Regulation 1502, Computers, Programs, and Data Processing.
For more information
Additional regulations and publications that relate to this topic:
1528 Photographers, Photocopiers, Photo Finishers, and X-Ray Laboratories
1620 Interstate and Foreign Commerce
1660 Leases of Tangible Personal Property-In General
1661 Leases of Mobile Transportation Equipment
1684 Collection of Use Tax by Retailers
1685 Payment of Use Tax by Purchasers
1827 Collection of Use Tax by Retailers (for special district taxes)
68 Photographers, Photo Finishers, and Film Processing Laboratories
100 Shipping and Delivery Charges
101 Sales Delivered Outside California
103 Sales for Resale
107 Do You Need a California Seller’s Permit?
177 Internet Auction Sales and Purchases