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How is California sales or use tax determined?

Table of Contents

    There are often situations where it is clear that there is a sale or use of tangible personal property subject to sales or use tax, but it is not entirely clear what charges are included in the gross receipts or sales price subject to tax.

    • SHIPPING AND HANDLING CHARGES – Tax does not apply to separately stated transportation charges (other than charges for the use of the retailer’s facilities, i.e. retailer’s own truck). Handling charges are taxable.
    • CALIFORNIA REDEMPTION VALUE – The charge for California redemption value is a fee imposed on the distributor of a beverage. Although stated separately, the fee is subject to sales tax as part of the taxable selling price of the beverage.
    • LABOR – In California many types of labor charges are subject to tax. Tax applies to charges for producing, fabricating, or processing tangible personal property for your customers. Fabrication is considered to be work done in creating, producing, processing, or assembling a product. Modifying an item or system as part of a sale is also considered fabrication. Charges for fabrication labor are generally taxable, whether you itemize your labor charges or include them in the price of the product. Sales tax generally does not apply to charges for installation labor but does for fabricating property in place including assembling large items on location. Sales tax generally does not apply to your itemized charges for repair labor, but applies to charges for parts used in the repair job. Labor charges in providing a service where de minims tangible personal property are involved are generally sales tax free.
    • MAINTENANCE CONTRACTS (WARRANTIES) – Charges for mandatory maintenance contract, which must be purchased as a condition of sale, are subject to tax if they provide for furnishing of parts, materials, and labor necessary to maintain the property. Charges for optional maintenance contracts, which customers are not required to purchase as a condition of sale, are not subject to tax.
    • ALTERATION CHARGES – Charges for alteration to new items provided by the customer are generally subject to sales tax when the alterations result in the creation or production of a new item for the customer. Charges for alterations to used items are not taxable id the alterations merely refit or repair the items for the use for which they were created or produced.

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