Taxation in California

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.