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California use tax on business purchases
Use tax can arise on purchases that arrive without California tax on the invoice. A practical review starts with what was purchased, where it will be used and what the seller actually collected.
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General information, not legal or tax advice.
Look beyond invoices that show sales tax
CDTFA says use tax generally applies to physical merchandise bought from out-of-state sellers for California use when the seller does not collect and report it. Review untaxed equipment, supplies and other merchandise purchases instead of assuming an invoice without tax is exempt.
Sources: CDTFA Publication 123, Introduction
Locate the first California use
The use tax rate matches the local sales tax rate at the California location of first use. If the seller collected a lower rate, the remaining use tax may be due. Record the delivery and use location with the invoice so the reviewer can apply the appropriate local rate.
Sources: CDTFA Publication 123, Introduction
Check the reporting account
A seller’s permit holder pays use tax with the sales and use tax return. CDTFA also describes reporting through FTB for businesses without a seller’s permit, while qualified purchasers must register and report directly to CDTFA. Have your CPA and sales-tax preparer confirm which route applies before posting a payment.
Sources: CDTFA Publication 123, Introduction; CDTFA Publication 9, Construction and Building Contractors (February 2025), Required Registration to Report Use Tax
Review the qualified-purchaser purchase test
From January 1, 2024 through December 31, 2028, the test includes more than $10,000 per calendar year in purchases subject to use tax that was not otherwise paid to an authorized collecting retailer, excluding vehicles, vessels and aircraft. Track those purchases separately from revenue; the test described for this period concerns purchases.
Watch materials bought for construction
Under CDTFA Regulation 1521, contractors are consumers of materials they furnish and install. For a lump sum contract, sales tax on the sale to the contractor or use tax on the contractor’s use applies. Retain supplier invoices and job allocation records so untaxed material purchases are visible during the return review.
Sources: CDTFA Regulation 1521; Publication 9 (February 2025)
Sources: purchase use tax
Add purchase review to your sales tax workflow
Tidwell helps organize purchases and sales tax records, coordinating account and treatment questions with your CPA.