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Overview of California Sales and Use Tax

All the states in the US, except Delaware, Alaska, Montana, Oregon and New Hampshire levy Sales and Use Tax or the SUT. California Sales and Use Tax comprises of both, state and county level components. At a rough estimate, nearly three fourths of the revenue from SUT goes to the state and the remaining to the local authorities.

As is evident from the name, the SUT consists of (a) Sales Tax and (b) Use tax.
Sales Tax, first introduced in 1933, is imposed on retail dealers of tangible personal property, on the sales they make in the State of California. Use Tax introduced in 1935 relates to imposition of tax on users of goods that are bought out of the State, but brought in for use in California. Both of these together constitute the SUT. However, there is no National Sales Tax in the US.

SUT is applicable only to the final sales of tangible personal property like appliances, motor vehicles, clothing and a host of other items, except such items that have been specifically exempted. Any intermediate sales like those made from a wholesaler to a retailer are not subject to SUT. Services are also out of the SUT sphere, except some that are taxed in California. As the costs of services are included in the final price of tangible goods, they are anyway taxed indirectly.

The exemption or exclusion list for California SUT includes water, electricity, gas, steam, heat, food products, candy, gum, confectionery products, bottled water, prescription medicines, animal feed, custom computer programs and free newspapers and periodicals.

SUT rates all over California are not uniform. The rates differ in different counties, ranging between seven to eight and a quarter percent on account of varied rates of optional taxes, if levied additionally by the county. Out of the fifty-eight counties of California, twenty-four counties impose individual optional SUT levies that among other purposes are used to fund local programs such as schools, hospital services, public libraries and transportation projects.

As per the statistics available, as on the 1st of January 2001, the average California SUT rate (statewide) stood at 7.67 percent. The break up was a state share of 5.75 %, out of which 4.75% was to be attributed to the General Fund and the other 1% to specified local purposes. The balance 1.92% was the local tax imposition, consisting of 1.25% Uniform Local SUT, the Bradley Burns Uniform Local Sales and Use Tax for general purposes with the major part of the balance Optional Local SUT of 0.67% being used for transportation. The maximum rate of optional SUT is 1.50 %.

The allocation of 1.25% Bradley Burns Uniform Local Sales and Use Tax is done in two parts, to cities and counties. One part consisting of 0.25% goes to the county in which the sale occurs and is to be used for funding transportation projects, while remaining 1% goes to the city in which the sale occurs or if the sale is made in an unincorporated area, it goes to the county.

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