Use tax is like sales tax and is generally paid on items, purchased from out-of-state retailers, that will be used in California. The applicable tax rate is usually the rate at the location where the item will be first used. Usually, this is the location where the item will be shipped.
Some out-of-state retailers, including businesses selling online, by mail order or by telephone, collect use tax and pay it to the state. Others are not required to do so. If the out-of-state retailer does not collect the use tax or does not collect the tax based on the full tax rate applicable at the location where the item will be used, the purchaser is required to pay use tax.
Use tax is not an "Internet tax." The California use tax law became effective on July 1, 1935.
A consumer purchased a tent online from a company outside of California. The seller shipped the tent to the consumer's home in California, and did not charge any tax. In this case, the consumer would owe use tax on the purchase using the sales and use tax rate for their home address.
A consumer purchased a digital camera as a gift for a friend by mail order from a company outside of California where tax was not charged. The camera was shipped directly to the consumer who lives in California. The consumer then shipped the camera to his friend located outside of California. For this example, the consumer who made the purchase owes use tax
In addition to purchases from out-of-state businesses, use tax may be due when a person purchases a vehicle, vessel, or aircraft from a seller who does not hold a California seller's permit. For more information, please see our Tax Guide for Purchasers of Vehicles, Vessels, & Aircraft. Use tax is also owed when a California seller withdraws taxable merchandise from its resale inventory for personal or business use.
It helps pay for important state and local services Californians enjoy, such as public safety, education, and transportation.
The easiest way to know if you may owe use tax is to review your receipt to see if you were charged sales tax. If someone buys taxable items (e.g. books, electronic equipment, and toys) from any out-of-state seller and is not charged tax, the buyer is responsible to pay use tax.
There are three easy ways for consumers to pay use tax:
For more details: see the "For Personal Use" tab at Use Tax – What You Should Know.
Payment methods may vary depending upon the type of business. Those required to register with the BOE must pay directly to the BOE at the time they file their returns. Service businesses that are not required to register with BOE are able to pay on their state income tax forms.
For more details: see the "For Business Use" tab at Use Tax – What You Should Know.
There are two ways to calculate what you owe:
California loses approximately $1 billion every year in uncollected tax. The State of California and our local communities rely on use tax to help fund various public services. This underpayment is largely because many Californians are unaware of use tax and their obligations to pay.
The person should report and pay use tax for prior years directly to the BOE using the online registration system. Interest and penalty will be incurred for late payments.
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| Source | Use Tax Reported (in millions) (FYE 2011-12) |
Use Tax Reported (in millions) (FYE 2012-13) |
Use Tax Reported (in millions) (FYE 2013-14) |
|---|---|---|---|
| Registered with BOE | |||
| Use Tax Reported by Registered California Consumers (excluding Qualified Purchasers) | $122 | $147 | $166 |
| Use Tax Reported by Qualified Purchasers (service businesses) | $45 | $47 | $35 |
| Use Tax Reported by Registered Out-of-State Retailers | $1,596 | $2,005 | $2,337 |
| Use Tax Reported by Seller's Permit Holders | $1,507 | $1,517 | $1,374 |
| Use Tax Assessed in Audits | $100 | $107 | $134 |
| Not Registered with BOE | |||
| Use Tax Reported on One-Time, Individual Use Tax Returns | $7 | $4 | $6 |
| Use Tax Reported on California Income Tax Returns | $16 | $18 | $18 |
| Use Tax Reported on Out-of-State Purchases of Vehicles, Vessels, and Aircraft | $21 | $26 | $30 |
| Use Tax Collected by DMV on Private Party Transactions | $469 | $486 | $539 |
| Use Tax Reported for Mobile Homes | $3 | $3 | $3 |
| Total | $3,886 | $4,360 | $4,642 |
The Marketplace Fairness Act (MFA) is a federal bill pending in the U.S. Congress that, if enacted, grants states the authority to compel online and catalog retailers, regardless of location, to collect sales tax at the time of purchase, if states agree to enact simplified sales tax laws. Supporters say sales tax is already due on all purchases in 45 states and the MFA allows states to enforce existing laws.
The Board of Equalization is monitoring the progress of pending federal legislation and will evaluate its impact on the state if and when a bill passes through Congress and is signed by the President.
California legislation enacted in 2011 (AB 155, Ch. 313, Stat. 2011) expanded the number of businesses are required to collect and remit California taxes to the BOE. The law became effective on September 15, 2012.
Online and other retailers that do not have a direct physical presence in California are required to register with BOE, report and collect use tax if the retailer meets the following criteria:
Consumers may now see a point-of-sale charge when buying from these retailers, and no longer have to pay use tax themselves on these purchases.
As of July 1, 2013, approximately 45 companies have registered with the BOE due to the enactment of AB 155. Revenue collected from companies generally associated with the enactment of AB 155 during Fiscal Year 2012-13 totaled $262 million. Business-specific information is not available due to taxpayer confidentiality laws.
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