California Use Tax: What It Is and Who Pays

California use tax generally applies when taxable merchandise is bought without sufficient California sales or use tax and is then stored, used, consumed, or given away in California. It complements sales tax and generally uses the same combined state, local, and district rate. It is not a second tax when the correct California tax was already paid.

Use tax often appears after an online, out-of-state, private-party, or business purchase. The invoice is the starting point: determine what was purchased, whether it would have been taxable from a California retailer, where it was used, and whether the seller collected California tax.

When use tax applies

A California business may owe use tax on equipment, furniture, tools, supplies, promotional items, or other taxable property purchased from a seller that did not collect California tax. Personal purchases can also trigger it. The fact that a seller is located outside California, a purchase was made online, or no tax appeared at checkout does not by itself make the purchase tax-free.

Use tax does not generally apply when the item would be exempt if bought from a California retailer, or when the correct California sales or use tax was already paid. Special rules apply to vehicles, vessels, aircraft, property first used outside California, gifts, manufacturing equipment, and other transactions.

How to calculate California use tax

The basic calculation is:

Purchase price subject to tax × rate where the property is used = use tax

Assume a Santa Maria design business buys a $4,000 computer workstation from an out-of-state vendor. The vendor collects no California tax, and the verified rate where the workstation is used is 8.75%.

$4,000 × 8.75% = $350 use tax

If the vendor collected $300 of qualifying California tax, the business may owe only the $50 difference, subject to the facts. If the vendor collected another state's tax, do not automatically subtract it; determine whether a credit is allowed and retain the invoice.

The taxable measure can include charges that are part of the purchase price. Separately stated delivery by common carrier may be treated differently from handling or delivery performed by the seller. Use the applicable CDTFA rules rather than removing all shipping-related charges automatically.

How businesses report it

A business with a California seller's permit generally reports purchases subject to use tax on its sales-and-use-tax return. A business with a consumer use tax account reports through that account. Certain "qualified purchasers" must register and report directly to CDTFA. From January 1, 2024 through December 31, 2028, the qualified-purchaser rule can apply to a business that makes more than $10,000 of purchases subject to use tax during the calendar year when the tax was not otherwise paid, excluding specified property.

Other eligible businesses or individuals may report use tax on a California income-tax return or through CDTFA's one-time use-tax process. Vehicles, vessels, aircraft, mobile homes, cigarettes, and tobacco products have special reporting restrictions and should not be forced into the ordinary income-tax-return method.

Use tax compared with sales tax

Sales tax generally applies to the retailer's taxable retail sale. Use tax generally applies to the purchaser's California use when sales tax was not properly collected. They usually share the same rate structure and are mutually complementary.

Example: A California retailer sells a taxable desk and collects the correct tax. That is ordinarily a sales-tax transaction, and the purchaser does not also owe use tax. If an out-of-state seller ships the same desk to California without collecting applicable tax, the purchaser may owe use tax. Some out-of-state sellers and marketplace facilitators are required to collect California use tax, so the receipt matters.

Use tax is also different from a customs duty, income tax, property tax, or payroll tax. Paying for an item with business funds or deducting its cost for income-tax purposes does not resolve the use-tax obligation.

Bookkeeping and records

Create a repeatable accounts-payable review for purchases where the invoice shows zero tax or a suspiciously low amount. Useful records include vendor invoices, receipts, purchase orders, proof of where property was delivered and used, fixed-asset records, credit-card statements, and evidence of tax already paid.

In the books, use tax may be capitalized into the asset's cost or recorded consistently with the related purchase under applicable accounting and tax rules. The amount owed should also flow through a payable until remitted. Avoid recording the payment twice—once with the original purchase and again when the return is filed.

Common mistakes

• Assuming an online or out-of-state purchase is automatically tax-free
• Reviewing only large fixed assets and ignoring supplies or promotional goods
• Paying tax at checkout without confirming it was California tax at the correct rate
• Applying the seller's location rate instead of the applicable California use location
• Confusing a deductible business purchase with a sales-and-use-tax exemption
• Failing to accrue use tax before the annual bookkeeping cleanup
• Reporting specially regulated property through the wrong channel

Planning triggers

Review use tax when opening a business, purchasing equipment from out of state, importing property, withdrawing resale inventory for business or personal use, giving away merchandise, or crossing the qualified-purchaser threshold. A purchase-system flag for untaxed vendors can be more reliable than reconstructing a year from bank statements.

Frequently asked questions

Related terms

• California Sales Tax
• California Department of Tax and Fee Administration
• Fixed Assets
• Business Expense
• California Form 540
• California Franchise Tax Board

Official sources

• CDTFA — California Use Tax
• CDTFA — California Use Tax for Business Use
• CDTFA — Publication 110, California Use Tax Basics
• CDTFA — Sales and Use Tax Rates

The definitions and examples on this page are for informational purposes only and do not constitute tax advice. Tax laws change frequently and individual circumstances vary. Consult a qualified tax professional before making decisions based on this content.