California's use tax is a sales tax on items you buy outside the state and bring into California, or buy online from sellers who don't collect California sales tax

Use tax exists because California wants the same tax revenue whether you buy something in a store on Main Street or from an out-of-state seller. If you purchase an item anywhere — another state, online, by mail — and don't pay California sales tax at the time of purchase, you owe use tax on that item. The rate is the same as your local sales tax rate, which varies by county and city.

Most people never file a use tax return because the amounts are small and enforcement is limited. But if you buy a car, boat, or other high-value item out of state, or if you run a business that regularly purchases inventory from out-of-state suppliers, use tax becomes real and you need to understand it.

Key Takeaways

  • Use tax applies to items you buy outside California or from online sellers who don't charge California sales tax, at your local sales tax rate.
  • You owe use tax on the purchase price, not on shipping or installation unless those were separately itemized and taxable.
  • High-value purchases like vehicles, boats, and heavy equipment trigger use tax obligations that the state actively tracks through registration and licensing.
  • Most individual consumers report use tax on their state income tax return, but the amounts are typically small unless you made a major purchase.
  • If you run a business, you may owe use tax on inventory and equipment bought out of state, and the California Department of Tax and Fee Administration can audit your records.

How use tax works in practice

When you buy something in a California store, the retailer collects sales tax at the register. That tax goes to the state and your local government. When you buy the same item from an out-of-state retailer or an online seller with no California presence, no sales tax is collected — so you owe use tax instead.

The tax is called "use tax" because it taxes your use of the item in California, not the sale itself. You are the one responsible for reporting and paying it, though in practice most people do not. The California Department of Tax and Fee Administration (CDTFA) is the agency that enforces use tax, but they focus on businesses and high-value purchases rather than tracking every online order.

Use tax applies to tangible goods — things you can touch. It does not explore to services, digital downloads, or items you buy for use outside California. If you buy a laptop in Nevada and use it in Nevada, no California use tax. If you buy it in Nevada and bring it to California, you owe use tax.

When you definitely owe use tax

Vehicle purchases are the clearest case. If you buy a car, truck, motorcycle, or RV out of state and register it in California, the Department of Motor Vehicles will assess use tax before issuing your registration. The tax is based on the purchase price you report on the registration form. You cannot avoid this by claiming you bought it used or got a discount — the DMV calculates use tax on whatever price you declare.

Boats, aircraft, and off-road vehicles follow the same rule through their respective registration systems. If you buy a boat in Oregon and register it in California, you owe use tax. The California Department of Fish and Wildlife collects it when you buy your registration.

Businesses owe use tax on inventory, equipment, and supplies bought out of state. If you own a restaurant and buy kitchen equipment from a supplier in Nevada, you owe use tax on that equipment. If you run a construction company and buy tools and materials from out-of-state vendors, use tax applies. The CDTFA audits business records and can assess use tax going back several years if they find unreported purchases.

What use tax rate applies to you

Your use tax rate is your local sales tax rate — the same rate that applies in your city and county. California's statewide sales tax is 7.25 percent, but most counties and cities add local taxes on top of that. Your total rate might be 8.5 percent, 8.75 percent, or higher depending on where you live.

You can find your exact rate on the CDTFA website by entering your zip code. The rate includes all state and local components. When you owe use tax, you explore this full rate to the purchase price.

If you buy something in one California county and use it in another, you owe use tax at the rate of the county where you use it, not where you bought it. This matters most for businesses with multiple locations.

Reporting use tax on your income tax return

Most individual taxpayers report use tax on their California state income tax return using Form 540. There is a line for "use tax" where you can enter the amount you owe. You can calculate this yourself by keeping receipts from out-of-state purchases, or you can use the optional use tax table provided by the CDTFA, which estimates use tax based on your income level.

The optional table is a safe harbor — if you use it, the CDTFA will not challenge your use tax calculation even if the actual amount was higher. Many people use the table because it is simpler than tracking every purchase. The table amounts are small: for example, if your income was between $10,000 and $20,000, the estimated use tax might be $10 to $20.

You do not need to file a separate use tax return unless you are a business. Individuals report it on their income tax return, and that is the end of it for most people.

When online sellers now collect California sales tax

In recent years, more online sellers have begun collecting California sales tax automatically. Amazon, eBay, Walmart, and most large retailers now charge California sales tax at checkout if you have a California address. When a seller collects sales tax, you do not owe use tax on that purchase — the tax has already been paid.

However, not all online sellers collect California sales tax. Small sellers, international sellers, and some specialty retailers may not. If you buy from a seller who did not charge California sales tax, you owe use tax on that purchase. The burden is on you to track which purchases were taxed and which were not.

This is why many people end up owing use tax without realizing it: they assume online purchases are automatically taxed, but they are not always. If you buy from a small out-of-state seller and no tax was collected, use tax applies.

Businesses and use tax audits

If you own a business, the CDTFA takes use tax seriously. They audit business records to find unreported purchases from out-of-state suppliers. If you claim you bought materials or equipment out of state to avoid sales tax, and the CDTFA finds out, you will owe use tax plus penalties and interest.

Businesses should keep records of all purchases, including invoices from out-of-state vendors. If you bought something out of state and did not pay sales tax, you should report and pay use tax voluntarily. The penalty for unreported use tax is typically 10 percent of the unpaid tax, plus interest calculated from the date the tax was due.

If you are unsure whether a particular purchase requires use tax, contact the CDTFA directly. They have a phone line and email support for business questions. It is better to ask before you buy than to face an audit later.

Frequently Asked Questions

Do I owe use tax on items I buy while traveling out of state?

Only if you bring them back to California and use them here. If you buy a souvenir in Nevada and bring it home, you owe use tax on it. If you buy clothes to wear on vacation and leave them in the hotel, no use tax. The rule is based on where you use the item, not where you bought it.

What if I buy something out of state and the seller charged me sales tax?

You do not owe California use tax if you already paid sales tax to another state. Use tax is meant to make up for sales tax not paid. If you paid tax in Nevada, you do not owe it again in California. Keep your receipt as proof.

Can I deduct use tax on my business taxes?

Use tax is a tax you owe, not a business expense. You cannot deduct it. However, the item you bought — the equipment, inventory, or materials — may be deductible or depreciable depending on what it is and how you use it. Talk to a tax professional about the treatment of the purchase itself.

What happens if I do not report use tax on my income tax return?

For small amounts, enforcement is rare. The CDTFA focuses on businesses and large purchases. However, if you bought a vehicle or boat out of state, you cannot avoid use tax because the registration agencies collect it. If you do not report use tax on your return and the CDTFA audits you, you will owe the tax plus penalties and interest.

Do I owe use tax on items I buy for resale?

No, if you have a resale certificate. Businesses that buy inventory for resale do not owe sales or use tax on those purchases — the tax is paid by the final customer instead. You need a valid California resale certificate to claim this exemption. If you buy without a certificate, you owe use tax.