Effective January 1, 2017, the official statewide sales tax rate in California will drop from 7.5% back down to 7.25%. This is due to the expiration of Proposition 30, which called for a four-year sales tax increase that started in 2013.
That said, the total tax rates in specific cities and counties will still remain higher as a result of local voter-approved district tax initiatives. To make sure you understand the full tax rate for your city or county, you’ll want to visit the California State Board of Equalization’s Find a Sales and Use Tax Rate webpage.
What does this mean for your business if you are selling products or services subject to California sales tax? As of January 1, 2017, individual businesses will be responsible for adjusting the sales tax they charge based on the new rate. Retailers may charge their customers 7.25% for the statewide sales tax, plus any district taxes that may be applicable in their area.
It’s important to know that the charged tax rate is based on the time of sale. So, anything purchased before the end of this year will be subject to the current sales tax rates, even if the product is being delivered or picked up in 2017.
If you overcharge your customers beyond the adjusted 7.25% sales tax rate (and any applicable district taxes), you will be responsible for refunding the excess fees. You can either refund the money directly back to the customer or pay the excess tax to the Board of Equalization. The retailer may then collect a refund on behalf of the customer by filing form BOE-101.
As a business owner, especially in the retail world, it’s vital to understand how state sales taxes and other district taxes will affect your business and your customers. With these upcoming rate changes for 2017, do your due diligence and make sure your charges are adjusted properly as of January 1.
For more information about state sales tax rates, contact Ferguson, Timar & Company today for a business tax consultation.