Taxes in California are collected by state and local governments through a number of tax categories.
Sales tax is imposed on retailers (not consumers) for the privilege of selling tangible personal property at retail. However, retailers are allowed (but not obligated) to obtain reimbursement for their tax liability from the consumer at the time of sale. Whether a sales tax reimbursement amount is actually added is a matter of contract between the retailer and the consumer.
Use tax is imposed on the storage, use, or other consumption in California of tangible personal property purchased from a retailer. Any person storing, using, or otherwise consuming in California tangible personal property purchased from a retailer is generally liable for the use tax. While the sales tax is imposed on retailers, the use tax is imposed on purchasers. A retailer engaged in business in California (which includes many businesses located outside of California engaging in E-commerce) is generally required to collect the use tax from the purchaser at the time of sale and provide the purchaser a receipt.
Property tax is imposed at a uniform 1% rate of assessed value due to Proposition 13. Additional taxes may be charged for bond repayment or special assessments, all of which must be voter approved (See Mello-Roos). Proposition 13 also established an acquisition value assessment system, which relates assessed value to the purchase price of the property and up to 2% annual inflation, with some exceptions.
Income tax in California is progressive, with the top tax rate of 13.3% the highest in the country. Conversely, due to refundable tax credits provided to families with children, the bottom 20% on average pay a negative income tax rate.
Sales tax
At 7.25%, California has the highest minimum statewide sales tax rate in the United States, which can total up to 10.75% with local sales taxes included.
Sales and use taxes in California (state and local) are collected by the California Department of Tax and Fee Administration, whereas income and franchise taxes are collected by the Franchise Tax Board.
The statewide base sales tax rate of 7.25% is allocated as follows: 7.25% – State + Local 6.00% – State 3.9375% – State – General Fund 0.50% – State – Local Public Safety Fund 0.50% – State – Local Revenue Fund for local health and social services 1.0625% – State – Local Revenue Fund (2011) 1.25% – Uniform Local Tax 0.25% – Local County – Transportation funds 1.00% – Local City/County – Operational funds
The statewide sales tax in California was first imposed on August 1, 1933, at the rate of 2.50% under the "Retail Sales Act of 1933." No local sales taxes were levied at that time. In an editorial dated September 5, 1933, the Los Angeles Times criticized the 2.50% sales tax rate in stating that the "sales-tax rate should not have exceeded 1 per cent" and that the tax rate was "so high as to discourage business, which will make the tax less productive."
Supplementary local sales taxes
Supplementary local sales taxes may be added by cities, counties, service authorities, and various special districts. Local county sales taxes for transportation purposes are especially popular in California. Additional local sales taxes levied by counties and municipalities are formally called "District Taxes."
The effect from local sales taxes is that sales tax rates vary in California from 7.25% (in areas where no additional local sales taxes are levied) to 10.75% (six cities located in Alameda County). For example, the city of Sacramento, the state capital, has a combined 8.75% sales tax rate, and Los Angeles, the largest city in California, has a combined 9.50% sales tax rate.
As of July 1, 2022, 62 local jurisdictions levy no additional local sales tax, while 6 cities (all located in Alameda County) have the highest combined sales tax rate in California at 10.75%.
Local sales tax rate cap
The combined tax rate of all local sales taxes in any county is generally not allowed to exceed 2.00 percent. However, this is a statutory restriction and the California Legislature routinely allows some local governments, through the adoption of separate legislation, to exceed the 2.00 percent local tax rate cap. The 2.00 percent local tax rate cap is exceeded in any city with a combined sales tax rate in excess of 9.25% (7.25% statewide tax rate plus the 2.00% tax rate cap).
As of July 1, 2022, 140 California local jurisdictions have a combined sales tax rate in excess of the 2.00 percent local tax rate cap: