Quick Answer
California use tax is a tax on the storage, use, or consumption of tangible personal property in California for which California sales tax was not paid. Same rate as sales tax — 7.25% base plus district add-ons. The short version is that use tax applies to out-of-state purchases, online purchases from non-registered sellers, and certain business-use acquisitions. Businesses report use tax on CDTFA returns; individuals report on California income tax return. Common exemptions include resale, most services, and specific exempt items like prescription medications.1
Use tax question? A 15-minute consultation is free.
Use tax is the compliance counterpart to sales tax. Many businesses underreport use tax — not from intent, but from misunderstanding the scope. CDTFA use tax audits are a meaningful category of assessment. This chapter walks through the four use tax scenarios.
For sales tax overview, see What is California Sales Tax?. For nexus rules, see Sales Tax for Out-of-State Retailers.
The Four Use Tax Scenarios
| Scenario | Typical Use Tax Obligation2 |
|---|---|
| Out-of-State Purchase | Purchased without CA sales tax; subject to use tax on use in CA |
| Online Purchase (non-registered seller) | Same — use tax on CA use |
| Business Use | Business purchases for own use trigger use tax |
| Converted Inventory | Resale inventory converted to personal or business use |
Quick Reference
Jump to scenario: out-of-state, online, business use, or converted inventory. 15-min consultation free.
1. Out-of-State Purchase
Tangible personal property purchased outside California and brought into California is subject to use tax unless an exemption applies.
If this is you: You purchased equipment, vehicles, or goods out-of-state and brought them into California. Use tax is owed at the California rate. Out-of-state seller's tax does not satisfy California use tax.
Out-of-State Purchase Strategy
- Track out-of-state purchases.
- Identify California use.
- Report use tax on CDTFA return (business) or CA income tax return (individual).
- Retain out-of-state purchase documentation.
- Apply credit for out-of-state sales tax actually paid.
2. Online Purchase
Purchases from online sellers not registered with CDTFA trigger California use tax. Marketplace facilitators (Amazon, eBay) generally now collect sales tax on California sales, but smaller online retailers may not.
If this is you: Online purchases without California sales tax. Use tax is owed. California has use tax lookup tables for individuals with small purchase volumes; businesses track exact amounts.
3. Business Use
Business purchases for own use — equipment, supplies, vehicles — trigger use tax unless an exemption applies.
If this is you: Business acquiring equipment or supplies for own use. Use tax applies. Resale exemption does not apply to own-use acquisitions.
4. Converted Inventory
Inventory originally purchased for resale but converted to personal or business use triggers use tax. The resale exemption is conditional on actual resale.
If this is you: Your business bought inventory under resale certificate but used some items internally. Use tax is owed on the converted inventory at its cost basis.
CDTFA reviewing your use tax? Use tax audits are common in construction, manufacturing, and retailer-dealer context. Book a consultation.
CA Use Tax Document Lookup
| Document | Purpose |
|---|---|
| CDTFA Form BOE-401-A2 | Sales/Use Tax return |
| CA Income Tax Return Line 91 | Individual use tax reporting |
| Publication 110 | California Use Tax Basics |
| Publication 52 | Out-of-State Purchases |
| RTC §6201 | Use tax statute |
| RTC §6401 | Exemptions |
Use Tax Statute
- 3-year CDTFA audit statute.
- 8-year for substantial understatement.
- Unlimited for non-filing or fraud.
- 3-year refund claim statute.
Use Tax Audit Rates
| Industry / Scenario | Use Tax Audit Risk |
|---|---|
| Construction contractors | High |
| Manufacturing equipment | High |
| E-commerce retailers | Moderate |
| Retailers with resale certificate misuse | Elevated |
| Vehicle purchases out-of-state | Routine review |
Use Tax Escalation Pathway
Return to Audit
CDTFA sales tax audits routinely examine use tax compliance.
Assessment to Petition
Notice of Determination. 30-day petition window.
Appeals
CDTFA Appeals to OTA to Superior Court.
First 48 Hours of Use Tax Matter
- Identify out-of-state / online / converted-inventory purchases.
- Compute use tax owed.
- File on CDTFA return or amended CA return.
- Respond to CDTFA inquiries through counsel.
- Retain purchase documentation.
The ROI Question
Use tax audits frequently produce six-figure assessments. Professional defense — particularly on resale certificate disputes — typically saves multiples of the fee.
If you received a California CDTFA use tax audit notice or assessment:
California use tax audits are often triggered by CDTFA inquiry letters that look routine — but the response window matters and errors in the initial response are hard to walk back. A free 15-minute call covers what the notice actually means, whether your records support your position, and what CDTFA can realistically do from here.
Talk to Sam About Your Use Tax Notice — Free → Or call: (619) 378-3138
When to Engage Attorney
- Use tax audit notice.
- Construction or manufacturing business.
- Resale certificate dispute.
- Large out-of-state equipment purchase.
Any of the above apply?
15-minute consultation is free.
Get a Candid Assessment — Free →Or learn more about California sales tax and CDTFA defense →
Frequently Asked Questions
What is California use tax?
A tax on the storage, use, or consumption of tangible personal property in California for which California sales tax was not paid. Same rate as sales tax — 7.25% base plus district add-ons. Applies to out-of-state purchases, online purchases, and business-use acquisitions.
Who owes California use tax?
Anyone who uses or stores property in California on which California sales tax was not paid. Includes businesses buying equipment out-of-state, individuals purchasing online from non-registered sellers, and retailers who convert resale inventory to own use.
How do I report use tax?
Businesses report on their quarterly or monthly CDTFA sales/use tax return (Form BOE-401-A2). Individuals report on California income tax return Line 91. CDTFA also offers lookup tables for individuals with small purchase volumes.
Do I owe California use tax on Amazon purchases?
Amazon collects sales/use tax as a marketplace facilitator on most California sales. Smaller online retailers not registered with CDTFA do not collect, so use tax is owed by the purchaser. Verify each online purchase — some sellers collect, some do not.
Are there use tax exemptions in California?
Same exemptions as sales tax. Resale (true resale only), most services, prescription medicine, certain food, manufacturing equipment partial exemption under RTC §6377.1. Exemption requires the same documentation as sales tax exemptions.
What happens if I don't pay California use tax?
CDTFA audits can assess up to 3 years (8 for substantial understatement). Penalties apply (negligence 10%, up to fraud 25%). Interest accrues. Larger use tax deficiencies are common in construction and manufacturing audits.
Does use tax apply to vehicle purchases out-of-state?
Yes. Vehicles purchased out-of-state and registered in California trigger use tax at the California rate. DMV coordinates with CDTFA on vehicle registration use tax collection.
What is the CA use tax rate?
Same as sales tax — 7.25% base plus district add-ons. Total rate depends on the California location where the property is used. Use tax rates match sales tax rates for parity.
Can businesses deduct use tax?
Use tax paid on business property is a business expense deductible for federal income tax purposes. The underlying property's depreciation includes the use tax portion.
Does resale certificate exempt use tax?
Only for actual resale. If the purchaser issues a resale certificate but converts the property to own use, use tax is owed on the converted property at cost basis. Resale certificate misuse is a frequent CDTFA audit finding.
How does CDTFA find undeclared use tax?
Through CDTFA audits reviewing purchase invoices. Through federal tax return analysis (depreciation schedules showing equipment without corresponding use tax). Through vehicle registration data. Through resale certificate audits identifying conversion.
Can I amend returns to include missing use tax?
Yes. Amend the CDTFA sales/use tax return or California income tax return (depending on context) to include the missed use tax. Voluntary amendment typically avoids penalties beyond interest.
Are out-of-state services subject to use tax?
Generally no. Services are not typically subject to California sales or use tax. Specific exceptions exist for services that create or transfer tangible personal property. Pure services remain non-taxable.
Next Steps in This Guide
Use tax question? A 15-minute consultation is free.
If CDTFA has contacted you about unpaid use tax — or you're getting ready to self-report — our CDTFA defense practice handles these cases regularly. Book a free 15-minute call to talk through the specific situation.