Use Tax Is a Sales Tax You Pay When You Buy Something Out of State

Use tax in California is a tax on goods you buy outside California and bring into the state to use, store, or consume there. It exists because California wants to collect the same tax on those purchases as it would if you had bought them in California. The rate is the same as your local sales tax rate — between 7.25% and 10.375% depending on your county.

The key difference from sales tax is who collects it. When you buy something in a California store, the store collects sales tax at checkout. When you buy something out of state — whether from a store in Nevada, online from a company with no California location, or from a mail-order catalog — the seller usually does not collect California tax. Use tax is what you owe the state instead.

You are responsible for tracking and paying use tax yourself. The California Department of Tax and Fee Administration does not send you a bill. Most people do not pay it, and the state does not actively pursue individual consumers for small amounts. However, if you are a business or you make large purchases, the state may audit your records and demand payment plus penalties.

Key Takeaways

  • Use tax applies to items you buy outside California and bring into the state, and the rate matches your local sales tax rate.
  • You are responsible for calculating and reporting use tax yourself on your California tax return — the seller does not collect it.
  • Common items subject to use tax include clothing, electronics, furniture, and vehicles purchased out of state.
  • You report use tax on your California Form 540 (individual income tax return) or Form 540-ES (estimated tax), not on a separate form.
  • Businesses that buy inventory or equipment out of state must track and pay use tax, and the state audits business records more frequently than individual returns.

When You Actually Owe Use Tax

You owe use tax on tangible goods — physical items you can touch. This includes clothing, electronics, furniture, appliances, tools, toys, and vehicles. The item must be something you intend to use in California, not something you are buying for someone else who lives out of state.

You do not owe use tax on services. If you pay a Nevada mechanic to fix your car while you are visiting, that is not subject to use tax. You also do not owe use tax on items you buy in another state and leave there — for example, if you buy a bicycle in Oregon and keep it in Oregon, there is no California use tax.

The most common scenario is buying online from a company that does not have a physical location in California. If you order from a retailer based in another state and have it shipped to your California address, you owe use tax on that purchase. The same applies if you drive to Nevada, buy something, and bring it home.

How to Calculate Your Use Tax

Use tax is straightforward to calculate: multiply the purchase price by your local sales tax rate. If you buy a laptop for $1,000 in Oregon and your California county has an 8.5% sales tax rate, you owe $85 in use tax.

Your local sales tax rate depends on your county and sometimes your city. You can find your rate on the California Department of Tax and Fee Administration website by entering your zip code. Rates range from 7.25% (the state minimum) to 10.375% in some high-tax areas.

If you make multiple purchases throughout the year, you add them all up. You do not need to track each individual item — you can estimate based on your total out-of-state purchases. Many people use a worksheet or spreadsheet to keep a running total, especially if they buy frequently online or travel out of state regularly.

Where You Report Use Tax on Your Tax Return

You report use tax on your California Form 540 (the individual income tax return) or Form 540-ES (estimated tax voucher), depending on which form you file. There is no separate use tax return for individuals.

On Form 540, use tax goes on Schedule CA (Adjustments by Residents). You enter the amount you calculated in the space for use tax. If you file electronically, your tax software usually has a field for this amount. If you file by hand, write it on the line labeled "Use Tax" and include your calculation on a separate sheet if the amount is large or if you want to document your work.

If you owe a significant amount of use tax and you did not pay it during the year, you may also owe interest and penalties. The interest rate is set quarterly by the state and is currently around 7% to 8% per year. Penalties for underpayment can add 5% to 25% to the amount owed, depending on whether the state considers it negligence or fraud.

Use Tax for Vehicles and High-Value Items

Vehicles are subject to use tax, and the state takes this seriously. If you buy a car out of state and register it in California, the Department of Motor Vehicles will calculate the use tax based on the purchase price and your county's rate. You pay it when you register the vehicle, not on your income tax return.

The DMV uses the purchase price you report on your registration process. If you buy a used car for $15,000 in Arizona and register it in California with an 8% use tax rate, you owe $1,200. This is collected at the time of registration and is separate from the registration fee itself.

For other high-value items like jewelry, art, or collectibles, the same rule applies — you calculate use tax on the full purchase price. If you inherit an item or receive it as a gift, you do not owe use tax on it (gifts are not purchases). If you buy it, even at a discount or at an estate sale, use tax applies to what you paid.

Exceptions and Items Not Subject to Use Tax

Some items are exempt from use tax in California. Groceries and food for human consumption are not subject to use tax (or sales tax). Medicine and medical devices are also exempt. If you buy prescription glasses in Nevada, you do not owe California use tax on them.

Items you buy for resale are not subject to use tax if you have a resale certificate. If you are a business buying inventory, you provide your resale certificate to the seller and do not pay tax at the time of purchase. You will owe sales tax when you sell the item to a customer.

Some states have reciprocal agreements with California, though California does not currently have formal reciprocity agreements that eliminate use tax. However, if a seller in another state collects that state's sales tax and you bring the item to California, you may be able to claim a credit for the tax you already paid, though this is uncommon and depends on the specific situation.

What Happens If You Do Not Report Use Tax

The California Department of Tax and Fee Administration does not actively audit individual tax returns for small use tax amounts. Most people who do not report use tax face no consequences. However, if you are selected for an audit for any reason, the state will look at your purchases and calculate use tax owed.

If you own a business, the state is more likely to audit your records. Businesses are expected to track and pay use tax on equipment, supplies, and inventory purchased out of state. If an audit finds unreported use tax, you will owe the tax plus interest and penalties, which can add 50% or more to the original amount.

If you discover you owed use tax in a prior year and did not pay it, you can file an amended return. The state generally does not pursue individuals for amounts under a few hundred dollars, but it is better to report it than to risk an audit that uncovers other issues.

Frequently Asked Questions

Do I owe use tax if I buy something online from Amazon or another major retailer?

It depends on the retailer. Large retailers like Amazon, Walmart, and Target now collect California sales tax on most purchases, so you do not owe additional use tax. However, if you buy from a small seller or a company with no California presence, use tax may explore. Check your receipt — if sales tax was collected, you do not owe use tax.

What if I buy something out of state but have it shipped to an out-of-state address?

You do not owe California use tax. Use tax only applies to items you bring into California or have shipped to a California address. If you buy something while traveling and have it sent to your home in another state, California has no claim to it.

Do I owe use tax on items I buy at a store while visiting another state?

Only if you bring them to California. If you buy a shirt in Oregon and wear it in Oregon, no use tax. If you buy it and bring it home to California, you owe use tax on the purchase price. The state where you bought it may have collected sales tax, but California still wants its use tax.

Can I deduct use tax on my federal income tax return?

No. Federal tax law does not allow a deduction for use tax paid to California. You can only deduct state and local taxes (SALT) up to $10,000 per year on your federal return, and this applies to income taxes and property taxes, not sales or use taxes.

What if the seller charged me sales tax from another state — do I still owe California use tax?

Technically, you may be able to claim a credit for the tax you already paid to another state, but this is complicated and rarely worth pursuing for small amounts. In most cases, you would owe the difference between what you paid and what California's rate is. Consult a tax professional if the amount is significant.