Sales and Use Tax Rate Decreases January 1, 2017
Voter-approved Proposition 30*, The Schools and Local Public Safety Protection Act of 2012, which imposed the one quarter of one percent (0.25 percent) temporary statewide sales and use tax rate expires on December 31, 2016. As a result, effective January 1, 2017, the California statewide sales and use tax rate will decrease by 0.25 percent from the current rate of 7.50 percent to the new rate of 7.25 percent. However, the total tax rate in many cities and counties will remain higher than the statewide rate because of local voter-approved district taxes in those areas.
*Note: Proposition 30 also increased the personal income tax on a temporary basis until 2018. However, Proposition 55 approved by voters in November 2016 extended only the personal income tax increase through 2030.
Retailers Responsible for Charging the Correct Sales and Use Tax Rate(s)
For retail transactions on or after January 1, 2017, retailers may charge their customers for tax reimbursement at the statewide sales and use tax rate of 7.25 percent, plus any applicable district taxes. Likewise, purchases that are subject to use tax on or after January 1, 2017, are subject to the 7.25 percent rate plus any applicable district taxes.
To find the full tax rate in your city or county, go to the Find a Sales and Use Tax Rate webpage and enter the address as prompted. (Please note that the 0.25 percent statewide tax rate decrease will not be reflected on this website until January 1, 2017). For additional information on the sales and use tax rates, you may also visit the California City & County Sales & Use Tax Rates webpage. For more information on district taxes, please see publication 44, District Taxes (Sales and Use Taxes).
If a Retailer Charges an Incorrect Tax Rate
A retailer who continues to charge and collect the higher statewide sales and use tax rate after January 1, 2017, must either refund the excess tax collected to their customer or pay the excess tax to the Board of Equalization (BOE). If the excess tax collected has been paid to the BOE, the retailer may request a refund on behalf of their customer by completing form BOE-101, Claim for Refund or Credit. For information regarding filing a claim for refund on tax overpaid to the BOE, please see publication 117, Filing a Claim for Refund.
Merchandise Delivered after January 1, 2017
The applicable sales and use tax rate is the rate that is in effect at the time the sale occurs. Generally, the sale occurs when the merchandise is delivered to the customer, unless the sales contract specifically states that title to the merchandise passes to the customer prior to delivery.
Therefore, if the sales contract does not specify when title passes, most retail sales of merchandise delivered to customers on and after January 1, 2017, will be subject to the new tax rate of 7.25 percent plus any applicable district taxes. For additional information regarding when a sale occurs, please see Regulation 1628, Transportation Charges.
The customer should be refunded the amount of tax at the rate that was charged and collected from the customer at the time of the original sale.
The statewide sales and use tax 0.25 percent rate decrease applies to all taxable sales and purchases made as part of a fixed-price contract or fixed-price lease agreement (other than certain leases of mobile transportation equipment) that were entered into prior to January 1, 2017. The decreased rate replaces the rate in effect at the time you first entered the fixed-price contract or fixed-price lease agreement.
Exception for Leases of Mobile Transportation Equipment (MTE)
Lessors of MTE who elect to pay their use tax liability measured by the fair rental value (FRV) of MTE must pay tax at the rate in effect at the time the equipment was first leased. The rate remains the same for all periods during which the equipment was leased, including during any period in which the statewide base sales and use tax rate increased or decreased. Therefore, the 0.25 percent decrease does not apply to MTE that is first leased prior to January 1, 2017, and the lessor reports the lease receipts based on FRV.
Partial Tax Exemptions
The statewide sales and use tax rate decrease of 0.25 percent affects certain partial state tax exemptions.
Effective January 1, 2017, the partial state tax exemption rate decreases by 0.25 percent from 5.25 percent to 5.00 percent for the listed partial state tax exemptions below:
- Farm Equipment and Machinery (Regulation 1533.1)
- Teleproduction or Other Postproduction Service Equipment (Regulation 1532)
- Timber Harvesting Equipment and Machinery (Regulation 1534)
- Racehorse Breeding Stock (Regulation 1535)
In addition, effective January 1, 2017, the Manufacturing and Research and Development Equipment partial state tax exemption rate (per Revenue and Taxation Code section 6377.1) decreases from 4.1875 percent to 3.9375 percent, and Diesel Fuel Used in Farming Activities or Food Processing partial state tax exemption rate (Regulation 1533.2 decreases from 7.00 percent to 6.75 percent).
Sales of Motor Vehicle Fuel (Gasoline) and Diesel Fuel
The statewide sales and use tax 0.25 percent rate decrease does not affect the sales and use tax rate for gasoline (motor vehicle fuel); however, the decrease does affect the sales and use tax rate for diesel fuel and aircraft jet fuel. The chart below provides the sales and use tax rates effective prior to and beginning on January 1, 2017.
|Sales and Use Tax Rates|
|Type of Fuel||Sales and Use Tax Rate through 12-31-16*||Sales and Use Tax Rate as of 1-1-17*|
|Gasoline (Motor Vehicle Fuel)||2.25%||2.25%|
|Aircraft Jet Fuel||7.50%||7.25%|
*You must add district taxes where applicable.
The excise tax rates for gasoline (motor vehicle fuel), diesel fuel, and aircraft jet fuel are not affected by the 0.25 percent rate decrease. For current information on the sales tax rates for sales of vehicle and diesel fuel, please see Sales Tax Rates for Fuels webpage.
Filing Returns Online with the BOE
Our online filing system is currently being updated to account for the 0.25 percent decrease in the statewide sales and use tax rate for returns that include periods on and after January 1, 2017. Please continue to file your sales and use tax returns and prepayments online by the due dates.
For some retailers, the sales and use tax decrease becomes effective in the middle of their reporting period. As the retailer, you must separate your sales made prior to and after January 1, 2017, thereby calculating the tax at the two different rates. When filing online, the system will allow you to report the transactions using the two different rates on the split rate return and will do the rate calculations for you.
For More Information
If you have questions about the tax rate decrease, or how it may affect the overall tax rate in your area, please call our Customer Service Center at 1-800-400-7115 (TTY:711). Customer service representatives are available to assist you weekdays from 8:00 a.m. to 5:00 p.m. (Pacific time), except state holidays.
Special Notice: Sales and Use Tax Rate Decreases by 0.25 Percent Effective January 1, 2017 (October 2016)