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Introduction to California's Sales Tax for Food Processors

2024-12-05
In California, retail sales of tangible items are generally subject to sales tax. But some items are exempt from sales and use tax, including sales of certain unprocessed food or sales of items paid for with food stamps, etc.

With all the above in mind, how do you deal with sales tax if you operate a food or food processing business in California?

  1. Are They Exempt from Sales Tax When Food Processors Procure Food Raw Materials?

    Not all food sales are tax-exempt unless it meets the definition of Nontaxable Food Products in California generally.

    For example, "Nontaxable Food Products" includes cereal and cereal products, milk and milk products, including ice cream, ice milk novelties, dried milk products, milkshakes, and any other similar type beverages composed at least in part of milk or milk product, meat and meat products, fish and fish products, coffee and coffee substitutes, etc. It also includes all fruit juices, vegetable juices, and other beverages, whether liquid or frozen, etc.

    If the food you sell does not meet the definition of Nontaxable Food Products, you should consider the taxation issue.

    Therefore, when you purchase " Nontaxable Food products" as raw materials as a food processor, sales tax is usually exempt.

  2. Are They Exempt from Sales Tax When Food Processors Procure Raw Materials for Reprocessing and Sale?

    Raw materials purchased by food processors for the following purposes are exempt from tax:

    (1)
    		 Raw Materials Are Part of Manufactured Goods

    If raw materials for the production of food are purchased for the purpose of being used in the production of final consumer goods or part of a manufactured product, the purchaser is not subject to sales tax. For example, any raw material becoming an ingredient or component part of the manufactured article.

    So, when food processors buy raw materials that will become physical parts of the items to be resold for sale, no sales tax is required.
    (2)
    		 Levied on the End-User or End Consumer

    Sales tax is levied on most tangible products and certain services. The levy is imposed on the end-user or end consumer.

    When selling to grocery shops or supermarkets, no tax is levied on them as long as they provide a certificate that they have obtained a tax exemption or resale, while retaining the supporting documentation.

  3. A Sales Permit Is Required Whether or Not Sales Tax Is Required to Be Paid

    (1)
    		 In California, if you set up an office, sales room, or warehouse, or hire employees and intend to sell or lease tangible personal property, you are ordinarily subject to sales tax if selling at retail. And you must obtain a seller's permit and file sales tax.
    (2)
    		 If you are a remote seller, you need to consider whether the sales have reached the economic nexus threshold of the state where the sales occur. Once you reach the threshold, you need to apply for a sales tax permit and file a sales tax return for that state. (Refer to Kaizen’s article: https://en.kaizencpa.cn/knowledge/Remote-Seller-in-US-Economic-Nexus.html)

Reference:
https://www.taxes.ca.gov/sales_and_use_tax/whatstaxable.html
 https://www.cdtfa.ca.gov/lawguides/vol1/sutr/sales-and-use-tax-regulations-art8-all.html
 https://www.cdtfa.ca.gov/lawguides/vol1/sutr/sales-and-use-tax-regulations-art3-all.html
 https://www.cdtfa.ca.gov/formspubs/pub103/#resale
 https://www.cdtfa.ca.gov/taxes-and-fees/faqseller.htm

Disclaimer

All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.

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