Tax Guide for Home-Based Businesses

More than half of all U.S. businesses are home-based. We understand that there are many rewards as well as challenges in starting a home-based business. We realize that locating and reviewing all of the information needed to manage your business can be overwhelming. Therefore, we created this guide to provide you easily accessible information to assist you in understanding your sales and use tax obligations.

Asian Female at Desk.

How to Use This Guide

This guide contains important information on managing your home-based business.

The Getting Started section provides key resources related to registration, return filing, account maintenance, and other important information you may need.

The Managing Your Sales section includes topics important to the success of your business such as good recordkeeping practices, determining your tax and fee rates, and allowable exemptions specifically related to your business.

The Industry Topics section covers many topics that are common in home-based businesses that may be helpful to you in running your business.

The Resources section provides links to a wealth of information, including forms and publications, current updates, and other helpful resources.

Please note that the information included is general in nature and is not intended to replace any law or regulation.

African American Male Working on Computer.

If You Need Help

If you need assistance with topics included in this guide, feel free to contact us by telephone or email. For contact information and hours of operation please see our How to Contact Us webpage.

If you have suggestions for improving this guide, please contact us via email.

Getting Started

In California, all retail sales of tangible personal property are subject to sales and use tax unless the law provides a specific exemption or exclusion. Tangible personal property (TPP) is an item (e.g., merchandise, goods, etc.) that can be seen, weighed, measured, felt or touched.

If you sell TPP and make three or more sales in a 12-month period, you are considered a retailer and generally are required to hold a seller's permit. This is true whether the merchandise was sold through a storefront or out of a home. When you operate a home-based business and sell merchandise from your home, you generally must register with the Board of Equalization (BOE) for a seller's permit and file and pay any sales and use taxes you may owe. When there is no TPP transferred in a transaction, there is no "sale" under California Sales and Use Tax Law. Therefore, if your business provides a service rather than a sale of tangible goods, sales and use taxes generally would not apply to those transactions (See Service Businesses on the Industry Topics tab).

The requirements under the sales and use tax law for running a home-based business are generally the same as running a storefront business.

Registration

Online Registration – Register with us online for your seller's permit. In addition to holding a seller's permit, you may also need to register for another license or permit with the BOE. For more information about the permits or licenses BOE administers, please see our Permits & Licenses page.

Filing and Payment

Tax Return Filing Deadlines – Find your filing due dates.
File a Tax Return Online – File your return quickly and easily online.
Online Payment Options – Make online payments toward your current and past due tax liabilities.

Keeping Your Business Information Current

BOE-345-WEB, Notice of Business Change - To ensure we can provide you with the most helpful information about your account, please inform us of any changes made to your home-based business. You may also contact our Customer Service Center at 1-800-400-7115 (TTY:711), or the nearest local office to make changes to your account information.

Educational Consultations

As part of our commitment to helping you understand your sales and use tax obligations, we have established the Taxpayer Educational Consultation Program. This free program provides eligible businesses with education and assistance and helps them prepare for their sales and use tax reporting requirements.

Information regarding our free consultation program can be found in publication 176-1, Free Educational Consultation.

Get it in Writing

If you have specific sales and use tax questions regarding your home-based business, we recommend that you request answers from us in writing. This will enable us to give you the best advice and will protect you from owing tax, penalties, and interest in case you are given erroneous information.

For details, please see Form BOE-8, Get It In Writing!

Managing Your Sales

Recordkeeping

If you hold a California seller's permit or any other Board of Equalization (BOE) license or permit, you are required to maintain your business records to verify that you have properly paid the tax or fee.

You must keep your business records for at least four years. If you are being audited, retain all records that cover the audit period until the audit is complete, even if that period is longer than four years.

Your records should be adequate so BOE representatives may:

  • Verify the accuracy of your tax returns; and
  • Determine if you have correctly paid the tax due on your sales and purchases.

Records you should keep include, but are not limited to:

  • Cash register tapes
  • Purchase invoices
  • Sales invoices
  • Shipping documents
  • Resale certificates
  • Tax returns and supporting worksheets

Computing the Correct Tax

As a home-based business selling goods in California, you have a duty; whether or not you collect tax reimbursement from your customers, to report and pay the correct amount of state sales and use tax, which applies to all retail sales of goods, except those sales that qualify for an exemption or exclusion (refer to the Exemptions section below).

The sales and use tax rate that you are required to report and pay will vary depending on where you do business (For online sales, please refer to the Industry Topics tab, under the heading Internet Sales). You are responsible for the statewide tax rate and any applicable district taxes in cities and counties where you are engaged in business.

Generally, you are engaged in business in a district when you:

  • Have any kind of permanent or temporary business location in the district, including a warehouse, salesroom, or office;
  • Have any kind of representative or agent in the district, even temporarily, who makes sales, takes orders, or makes deliveries for you;
  • Use your own delivery vehicles to regularly deliver merchandise into or within the district; or
  • Receive rental income from the lease of merchandise located in the district.

Example 1:
If you sell crafts from your home and ship your crafts by common carrier into a city you are not engaged in business in, the applicable sales tax rate is the rate where your home is located.

Example 2:
If you sell goods at craft fairs, the applicable sales tax rate is the rate where the craft fair is located.

For more information on being engaged in business and the correct district tax rates, please see publication 44, District Taxes (Sales and Use Taxes).

You can look up tax rates by city and county or find the full tax rate in your city or county by going to the Find a Sales and Use Tax Rate webpage and entering the address as prompted.

Use Tax

Generally, if sales tax applies when you buy physical goods in California, use tax applies when you make a similar purchase without paying tax from a business located outside the state.

In addition, use tax applies to the use, storage, or other consumption of goods, including vehicles, within the state. Therefore, you must report and pay the use tax due on any home-based business related purchases on your sales and use tax return in the period in which your business first used, stored, or consumed the goods in California.

For more information, please see California Use Tax Information.

Inventory Withdrawals
As a registered seller's permit holder, you are entitled to purchase goods without payment of tax that you plan to resell (see Purchases for Resale below). However, if you remove goods from resale inventory and make use of the goods rather than reselling them, you owe use tax on the purchase price of the goods. For example, if you give away goods as a gift instead of reselling them, you must report and pay the use tax due on your sales and use tax return, on those goods withdrawn from resale inventory.

Example:
You sell home-made holiday ornaments from your home and at special events. You may generally purchase the items you use to make ornaments tax free, by giving your supplier a timely resale certificate. At the special event, as a promotion for your business, you give away small ornaments. You will be considered the consumer of any ornaments you give away and you will owe use tax on the purchase price of the material you used to make the ornaments.

Purchases for Resale

If you purchase goods that you plan to resell for your home-based business, you can purchase the goods without paying tax to your vendors by providing them with a resale certificate. 1

When your vendor accepts a valid resale certificate in good faith and in a timely manner, the vendor does not owe tax on that sale. You can provide BOE-230, General Resale Certificate, to your vendor when purchasing goods you will resell in the regular course of your business operations.

Generally, resale certificates are used:

  • When purchasing finished items for resale.
  • When buying materials that will become a physical part of an item that will be held for resale. 2
  • When purchasing items solely for demonstration or display while holding them for sale in the regular course of business operations.

As the purchaser, you should not use a resale certificate when buying a product that you will:

  • Use rather than sell,
  • Use in your business before you sell it,
  • Use for a personal purpose, or
  • Hold as an investment for appreciation in value and for sale in the future.

For more information on using a resale certificate, see publication 103, Sales for Resale.

1 Section 6015 retailers cannot accept resale certificates from their agents, unless the agent holds a California Sales or Use Tax Permit and sells the goods through a storefront. For more information on Section 6015 retailers, please see the Industry Topics tab, under the heading 6015 Retailers.

2 The purchaser must report use tax on their sales and use tax return on the purchase price of materials they purchased without tax, when the material is incorporated into an item that is later given away for free.

Exemptions

Depending upon your type of home-based business, some of your sales transactions may qualify for a full or partial sales tax exemption.

Exempt and excluded sales are transactions not subject to tax and a deduction for those transactions can be taken on your sales and use tax return. You must retain all documentation to support the deduction. Some common exempt sales transactions include:

For a list of all exemptions, please see publication 61, Sales and Use Taxes: Exemptions and Exclusions.

Other Non-BOE Licenses

In addition to obtaining a California seller's permit from the BOE, you may need other permits and licenses for your business.

We encourage you to visit the Governor's Office of Business and Economic Development webpage (GO-Biz) to help you determine if other state, federal, and local agencies have any licensing or registration requirements that may affect you.

GO-Biz offers extensive information, including:

  • CalGold – Provides information about other federal, state, or local government permits that may be required for your business.
  • California Business Portal – Provides personalized business assistance, including quick start guides for starting and growing your business, and the California Business Navigator which provides custom information for your business regarding permits, licenses, and incentives.

The BOE also partnered with the Employment Development Department, the Franchise Tax Board and Internal Revenue Service to establish the California Tax Service Center. The website acts as a one-stop source for the latest tax information.

Industry Topics

Internet Sales

Internet sales, including sales made through Internet auction houses, are treated the same as sales made at retail stores or through other outlets, such as through sales representatives, over the telephone, or by mail order.

Your Internet sales of goods are generally subject to sales tax unless they qualify for a specific exemption or exclusion. There is no general tax exemption for sales of tangible personal property made over the Internet.

Generally, if you are located in California, your sales shipped to customers in California are subject to sales tax. However, items sold and shipped to customers out-of-state are generally not subject to sales tax. When making sales to customers in California, you are responsible, whether or not you collect sales tax reimbursement from your customer, for the statewide rate and any district taxes that exist in cities and counties where you are engaged in business (For information on "engaged in business" please refer to the Managing Your Sales tab, under the heading Computing the Correct Tax). If you are not engaged in business in the district to which you are shipping goods, and you ship by common carrier, your customer is liable for the district use tax. As a courtesy, you may choose to collect the district use tax from your customer. If you do, it should be shown on the customer's invoice and you must report it on your sales and use tax return.

Internet Auction Sales
Sales made through an Internet auction house are considered "sales" for purposes of sales and use tax law. There is no general sale and use tax exemption or exclusion for sales made over the Internet. If you list your merchandise to sell, seek bids, accept a bid from the highest bidder through an Internet auction house, and transfer the merchandise to the purchaser, you are generally considered the retailer. This is true, even when a third-party (e.g. PayPal) collects the funds on your behalf.

Businesses like eBay or Craigslist are generally not considered retailers and are not responsible for collecting tax on transactions that use their services. Instead, these businesses aid the true retailers (you) by offering a service allowing you to post your goods for sale on their site.

For more information, please see publication 177, Internet Auction Sales and Purchases, or publication 109, Internet Sales.

6015 Retailers

If you do not have a storefront and only sell products you buy from what is referred to as a Revenue and Taxation Code (RTC) section 6015 retailer (section 6015 retailer) – like Avon or Tupperware – you do not need a seller's permit.

Typically, section 6015 retailers include multi-level marketing retailers that solicit sales through a network of individual salespeople or representatives. Individuals who sell these products have "shows" or "parties" and sell merchandise at their own home, a customer's home, on the Internet, or through direct sales to friends and family.

If you are an agent of a section 6015 retailer, that company will remit sales tax to the Board of Equalization on your behalf. The section 6015 retailer is regarded as the retailer and collects the sales tax on the suggested retail sales price when they sell the items to you.

Section 6015 retailers cannot accept resale certificates from you unless you hold a California Sales or Use Tax permit and sell the products through a storefront. A storefront does not include home-based businesses.

For more information please see RTC section 6015.

Garage Sales

When you have a garage sale and sell used personal goods, you are generally not required to hold a sellerís permit.

Each garage sale is considered a single sale, even though multiple items may be sold. When a person holds less than three (i.e. one or two) garage sales, of used goods that were accumulated for their own use, within a 12-month period, they are usually considered to be an occasional seller and not a retailer. However, if a person holds a third garage sale within a 12-month period, they are considered to be a retailer and are required to hold a seller's permit.

Service Businesses

If you are in the business of providing a service, your charge for the service is generally not taxable.

If, in addition to the services you provide, you regularly make sales of items to consumers, you will generally be considered the retailer of the items you sell and you are required to hold a seller's permit. Unless otherwise exempt, your sales of those items are subject to tax. In addition, any services that you provide that are part of the sale of the item sold will generally be taxable as well.

Below are some common service industry home-based businesses that may also make sales of goods:

Interior Designers or Decorators

An interior designer or decorator generally provides services such as design, repair, color coordination, and planning. In addition to the services mentioned, an interior designer or decorator may also sell goods, such as furniture, window coverings, carpeting, home accessories, cabinets, and samples. Therefore, if you are an interior designer or decorator and you sell any goods to your clients, your sales of goods are taxable and you are required to hold a seller's permit.

In general, your fees charged for consultation, layout, coordination of furniture and fabrics, selection of color schemes, etc., are considered charges for professional services. The charges are not subject to tax when they are not directly related to your sale of goods. However, tax does apply to your charges that are directly related to acquiring and providing furnishings and other goods you sell to a client. Your fees for nontaxable charges should be separately stated from charges related to sales of goods.

Example:
When you charge fees to accompany a client to a showroom to select furniture the client is buying from you, those fees are taxable, because it a part of your taxable sale of furniture to your clients.

For more information on the application of tax to charges from interior designers, please see publication 35, Interior Designers and Decorators.

Photographers

As a photographer who makes sales of printed photos or related goods, you are required to hold a seller's permit. You are generally making a sale of goods when you transfer photos to your customer in a tangible form. Tangible forms include prints as well as electronic files contained on tangible media (e.g.CD, flash drive or DVD). The sales of printed photos and related goods are treated the same as other goods and are generally taxable unless a specific exemption or exclusion applies.

Photography services are generally subject to tax if they are part of the sale of tangible property (e.g. photos). However, your fee charged for photography services, including taking photographs and editing, are not taxable when:

  • There is no transfer of photos or related goods in tangible form, and
  • There is no intent of later providing printed photos or goods to your customer.

However, when you perform photography services that result in a sale of photos or related goods in tangible form, your entire charge is taxable regardless of whether you separate the charges for the services or labor performed in creating the printed photos or related goods.

Example:
You enter into a contract with a client to provide them with photography services and a link to their digital images. When you electronically transfer copies of the images, tax does not apply to the charges for the service or for the digital images. The sale of the electronic data is not a taxable transaction.

However, if you provide printed photos with your photography services, tax applies to the entire charge. The printed photos are tangible personal property and the sale of the printed photos is subject to tax. When the printed photos are transferred to your client, tax would apply to the gross receipts. The gross receipts would include all charges that are related to the production and creation of the printed photos, including your photography services.

For more information on the application of tax to charges from photographers, please see publication 68, Photographers, Photo Finishers, and Film Processing Laboratories.

Sales of Food

Generally, the sales of hot food are taxable, while the sales of cold food to-go are not taxable.

However, tax does apply to sales of hot and cold food products that are sold:

  • To be consumed on the business premises, or
  • In a form to be consumed at tables, chairs, or counters or from trays, glasses, dishes, or other tableware (provided by the retailer or by a person with whom the retailer contracts to furnish, prepare, or serve food products to others), or
  • At an event where admission is charged.

Unlike a restaurant, home-based businesses do not generally sell prepared food to be consumed at the place of business. However, if you prepare and sell food products from your home, and you meet one of the conditions mentioned above, your sales of food products are taxable.

Below are some common retailers of food (some who generally do not operate from a physical location) and the application of tax to their business.

Caterers

A caterer is in the business of serving meals, food or drinks on the premises of the customer, or on the premises supplied by the customer.

Tax generally applies to charges made by caterers for:

  • Prepared hot/cold food and drinks even though the ingredients may not be provided by the caterer;
  • Prepared hot/cold food whether or not served by the caterers; and
  • Any other services related to the preparation and serving of food for clients (e.g. cutting and serving a cake provide by the customer).

For more information on caterers, please see Tax Guide for Caterers.

Mobile Food Vendor

A mobile food vendor does not have a physical location and generally sells food or drinks from a truck, stand, or wheeled cart. If you are a mobile food vendor (e.g. a hotdog cart), you must report tax on your sales of hot, prepared food and carbonated beverages, such as sodas. In addition, your sales of cold food are taxable when:

  • Sold for consumption at tables that you provide, or
  • Sold at a place that charges admission such as swap meets, trade shows, etc.

For more information, please see publication 287, Mobile Food Vendors Tax Guide and Tax Guide for Caterers.

Home-Based Bakeries

The sales of baked goods such as bread, cookies, cakes, including wedding cakes, are generally not taxable, when sold on a "to go" basis, or sold for resale (e.g. to a caterer). However, if the cakes are sold for consumption at the home-based business location, the sales are subject to tax.

For example, if you charge your customer a cake tasting fee, tax would apply to your charges as the cake is considered to be consumed at your home-based business location.

Selling at Swap Meets, Flea Markets and Special Events

In general, sellers at swap meets, flea markets and special events that make retail sales are required to obtain a seller's permit.

As a seller at swap meets, flea markets and special events, you are required to provide specific information to the operator of the event in order to sell there. You can use form BOE-410-D, Swap Meets, Flea Markets, or Special Events Certification, to provide the required information. Your sales are generally subject to sales tax unless they qualify for a specific exemption or exclusion.

Temporary Sellers

If you will be selling items at a location for less than 90 days, you are considered a temporary seller, and are required to hold a temporary seller's permit. You will need to register each temporary sales location. However, if you participate in three or more swap meets, flea markets, and special events in a 12-month period, you must obtain an ongoing seller's permit. If you already hold a seller's permit for a permanent place of business (your home-based business location) but also make sales at a temporary location, you will not need to register for a separate temporary seller's permit. Instead, you must register for a sub-permit for each of your temporary locations. You can register a temporary location online, under Register a Business activity with BOE, click Add a new location to an existing account link and follow the prompts.

Example 1:
You sell your handmade soaps at two craft fairs annually. You make no other sales at any other time in a 12-month period. You will be required to obtain a temporary seller's permit for each fair and register each location.

Example 2:
You sell your handmade soaps at two craft fairs annually. In addition, you also sell your handmade soaps online. Since you make more than two sales in a 12-month period and are engaged in the business of making handmade soaps, you will need to obtain an ongoing seller's permit.

Itinerant Veteran Vendors

Qualified itinerant veteran vendors are generally the consumers of items they own and sell, and are not required to hold a seller's permit. As an itinerant veteran vendor, you must pay tax on your purchases of all taxable items that you intend to sell.

Under Revenue Taxation Code section 6018.3, you are a qualified itinerant veteran vendor if all of the following apply:

  • You were honorably discharged from the United States Armed Forces,
  • You are a sole proprietor with no employees,
  • You have no permanent place of business in this state, and
  • You are unable to obtain a livelihood by manual labor due to a service-related disability.

However, if you sell alcoholic beverages or taxable items for more than $100, you are considered a retailer of those items and will be required to obtain a seller's permit and report tax on those sales.

Examples of qualified itinerant veteran vendor businesses include:

  • Swap meet or flea market vendors,
  • Lunch wagon operators, or
  • Coffee cart operators.

Resources

Need to know more? Follow the links below for more information about the topics covered in this guide, as well as other information you might find helpful.

Top Publications

Other Helpful Resources

  • BOE Online Services – Learn about the online services BOE offers, including online registration for seller's permits and other accounts.
  • BOE Field Offices – A comprehensive listing of all BOE field offices and contact information.
  • City and County Tax Rates – A listing of current and historical tax rates.
  • Contact Us – A listing of BOE contacts for your questions and concerns.
  • Find Your Board Member – You can use this to quickly identify your elected BOE representative.
  • Find Your Tax Rate – You can look up the current sales and use tax rate for a specific address.
  • Get It in Writing! – The Sales and Use Tax Law can be complex, and you are encouraged to put your tax questions in writing.
  • News Releases – BOE News Releases cover a broad range of topics, from agency appointments to improvements and enhancements to BOE customer service.
  • Special Notices – Special Notices offer taxpayers guidance regarding law and policy changes, significant news and program updates, and other important information.
  • Sign Up for BOE Updates – Sign up to receive monthly bulletin detailing important information, including Special Notices, Tax Information Bulletins, and updates to the BOE's Annual Report.
  • Taxpayers' Rights Advocate (TRA) – The TRA Office helps taxpayers when they are unable to resolve a matter through normal channels (e.g., by speaking to a supervisor), when they want information regarding procedures related to a particular set of circumstances, or when there are apparent rights violations.
  • Verify a Permit or License – You can use this to verify a seller's permit, cigarette and tobacco products retailer's license, eWaste account, or underground storage tank maintenance fee account.
  • Videos and How-To Guides – These resources will help you avoid common mistakes, file your tax returns online, and more.