Guide to Understanding and Paying Sales Tax in California for Online Retailers and Etsy Stores
Welcome to our detailed guide on handling sales tax for Etsy and online stores in California. The world of sales tax may seem intimidating, but with the right guidance, it’s not as complex as it appears. Let’s simplify it together.
If you’re looking for a quick summary, here it is:
- Determine your State base rate and your local sales tax rate. Add these two to figure out the sales tax to charge. Visit this page for current sales tax rates in your city and county, in California. For other states, consult your State website.
- Understand if your state is “origin-based” or “destination based” – more on this later
- Input the total sales tax you need to charge in your payment processor (Stripe, Square, Shopify, Paypal etc) settings
- Your customers will now be paying that tax amount and you will forward all that collected sales tax to the California Department of Tax and Fee Administration annually.
>> Visit this page for current sales tax rates in your city and county, in California.
For other states, consult your State website.
Table of Contents
- Grasping Sales Tax Fundamentals
- Sales Tax in California: The Essentials
- Applying for a Seller’s Permit
- Origin-based vs. Destination-based sales tax States
- How to Gather Sales Tax from California Customers
- Submitting Sales Tax in California
- Paying Etsy and Online Store Sales Tax in California
- Navigating Business Taxes in California
- Maintaining Records for Taxes
- The Influence of Tax on Your Ecommerce Store’s Profits
- Resources to Assist with Sales Tax and Business Taxes
- Initial Steps You Can Take To Begin
Grasping Sales Tax Fundamentals
If you’re new to online retail or running an Etsy shop, you might be asking, “how do I handle sales tax in California?” Let’s start with the basics. Sales tax is a consumption tax imposed on the sale of goods and services. In most states, including California, consumers pay sales tax at the point of purchase.
Sales Tax in California: The Essentials
Sales tax in California varies by locality, but as of this writing, the base state rate is 7.25%. Local tax rates can add between 0.10% to 1.00%, making the total sales tax rate anywhere from 7.25% to 8.25%. This means when you sell a product, you must add this percentage to the sale price, and this additional amount is what you’ll remit to the state.
Applying for a Seller’s Permit
Before you start gathering sales tax, you must apply for a seller’s permit through the California Department of Tax and Fee Administration. This is a straightforward process that can be completed online and is an essential first step for any new online retailer or Etsy shop owner.
Determine if your state is an Origin-based or Destination-based sales tax state:
What does it mean that California is an origin-based sales tax state?
There are two methods to determine sales tax rates: origin-based and destination-based.
Origin-based sales tax: In this system, the sales tax rate is based on the location of the seller.
For instance, if your business is based in California and you sell a product to a customer in New York, you would charge the California sales tax rate, regardless of the customer’s location.
Destination-based sales tax: In this system, the sales tax rate is based on the location of the buyer. If you are a California-based business selling to a customer in New York, you would charge the New York sales tax rate, even though your business is located in California.
Most states use a destination-based sales tax system.
However, there are a few exceptions such as Alaska, Delaware, Montana, New Hampshire, and Oregon, which use an origin-based sales tax system.
Below is a list of all the origin-based states and all the destination based states.
It’s important to understand the specific sales tax regulations in each state and jurisdiction to ensure compliance and accurate tax collection. Consulting with a tax professional or accountant knowledgeable in sales tax can provide valuable guidance tailored to your business’s circumstances.
Origin-based States:
(you collect the sales tax rate from your city and county within the state):
- Arizona
- California
- Illinois
- Mississippi
- Missouri
- Ohio
- Pennsylvania
- Tennessee
- Texas
- Utah
- Virginia
Destination-based States:
(you collect the sales tax rate from your city and county within the state):
- Alabama
- Arkansas
- Colorado
- Connecticut
- Florida
- Georgia
- Hawaii
- Idaho
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Nebraska
- Nevada
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Oklahoma
- Rhode Island
- South Carolina
- South Dakota
- Vermont
- Washington state
- West Virginia
- Wisconsin
- Wyoming
