Services generally aren’t taxable in California. Consultants, lawyers, and personal trainers bill clients without charging sales tax. But California does tax tangible personal property, and that can sometimes intersect with the sale of services. Services that create, alter, or deliver something physical can be subject to tax.

Below, we’ll discuss when services are taxable in California, common examples of taxable services, and how to correctly charge tax on them.

Key takeaways

• California taxes tangible personal property. Most stand-alone services remain outside the sales tax base entirely.

• Fabrication labor, mixed transactions, and physical software delivery are the main conditions that make a service taxable, though the qualifications for software will change in 2027.

• The taxability of mixed transactions comes down to what exactly the customer is paying for.

When are services taxable in California?

Services become taxable in California when the labor involved counts as fabrication rather than repair or installation. The distinction comes down to whether the work creates or changes a product, or simply restores the product or puts it in place.

Here are some examples of services that count as fabrication and are taxable, according to the California Department of Tax and Fee Administration (CDTFA):

• Cutting, assembling, or modifying materials into a finished product: A machine shop that cuts sheet metal to a customer’s specifications and welds it into a bracket is performing fabrication labor. That charge is taxable even when it’s billed separately from the materials.

• Engraving, printing, or applying finishes to a product: A shop that engraves a trophy or silk-screens a shirt is fabricating a product. The labor portion of that charge is subject to tax.

• Assembling components into a new product: Building a custom piece of furniture from raw lumber, instead of repairing an existing piece, counts as fabrication.

If you’re fixing a broken appliance, replacing a car part, or installing a water heater, that labor charge isn’t taxable—although the parts themselves still are.

What are common examples of taxable services in California?

A few industries constantly contend with the distinction between fabrication and repair.

Auto body shops

Repairing collision damage and repainting a customer’s vehicle is classified as repair and refinishing labor, and isn’t taxable—as long as it’s separately stated on the invoice. Only the physical parts (e.g., replacement panels, paint materials) are subject to sales tax. The same goes for straightforward mechanical repairs, such as swapping worn brake pads: the parts are taxable, while the repair and installation labor remains exempt.

Printing

Custom printing, such as producing business cards or banners, is generally taxable in full because the ink and paper transfer to the customer as tangible property, and the printing itself is inseparable from that transfer. By the same logic, when a copy shop duplicates a customer’s document, that transaction is also taxable.

Photography

Photography is less clear-cut as the delivery method decides the outcome. If a photographer hands over physical prints, the entire charge—sitting fee included—is typically taxable. If they deliver only digital files with no prints involved, the CDTFA has historically treated that as a nontaxable service.

Warranty and maintenance

The taxability of warranty and maintenance contracts depends on how they’re structured. A mandatory warranty bundled into a product’s sale price gets taxed as part of that product. An optional warranty sold separately is generally nontaxable. The business that provides the maintenance is considered the consumer of any parts used and must pay sales or use tax on the purchase cost of those replacement parts when it fulfills the contract. In that case, the CDTFA treats a portion of the contract price as taxable since the business is effectively preselling parts alongside the coverage.

Are software and digital services taxable in California?

Currently, prewritten, or “canned,” software delivered on a physical medium—such as a Universal Serial Bus (USB) drive—counts as tangible personal property in California and is taxable. The same software delivered electronically, through a download or a license key with no physical media involved, isn’t taxable.

That exemption applies to most software-as-a-service (SaaS) products too. A SaaS subscription usually involves no transfer of tangible personal property at all, just access to hosted software. So generally, California doesn’t tax it. Custom software built for one specific customer follows its own rule and stays nontaxable regardless of delivery method since the CDTFA treats custom development as intellectual labor rather than a sale of goods.

Similarly, digital downloads such as ebooks, digital music, streaming subscriptions, and downloaded apps are generally nontaxable in California when there’s no physical component involved. A few states, such as Washington, tax digital goods as their own category; California has no equivalent statute. Without a physical delivery mechanism, these products usually sit outside the sales tax base.

However, a new law will soon change California’s software taxation rules. Beginning January 1, 2027, prewritten software will be treated as taxable tangible personal property whether delivered on physical media, downloaded, or accessed via the cloud. Exclusions will remain for custom software and certain categories of digital content (e.g., digital books, music, videos, games), and transactions that primarily involve human effort after the customer request will remain exempt.

How are mixed transactions of goods and services taxed in California?

As a business, you assess a mixed transaction by determining which of the following your customer is primarily paying for:

• A service: Any tangible property is merely incidental to the service.
  
• A product: Any labor involved is incidental to the product.
  

This comes down to how you structure the invoice. If you present clients with one combined price for goods and services without separating the components, CDTFA can tax the entire amount whenever the transaction includes any taxable element. If you itemize labor and materials, you can generally pay tax on just the tangible goods and the fabrication labor, while genuine installation or repair labor stays exempt. Separately stated prices need to reflect a defensible allocation of value. CDTFA can reject an allocation that looks built purely to dodge tax (e.g., pricing materials at a token dollar amount).

How do you correctly charge tax on taxable services in California?

To determine whether a service is taxable, you need to know whether any tangible personal property is changing hands and whether any labor involved constitutes fabrication or repair. If the service in question is software or digital content, you also need to know whether it’s being physically delivered—at least until the new taxation law takes effect in 2027, making the delivery method irrelevant.

If a sale has taxable components, you’ll need to do the following correctly:

• Itemize invoices: When nontaxable repair or installation work is involved, you need to list labor and materials separately on the invoice. If you don’t, you’ll have to pay tax on the entire transaction.

• Apply the correct district tax rate: California’s base sales tax rate is 7.25%, but district taxes in cities and counties can push the total above 10.00% in some areas. The applicable rate generally depends on where the sale occurs or where the property gets delivered.

• Keep documentation on true object determinations: If CDTFA later audits a mixed transaction, you’ll need records that show why you classified it as a service versus a sale of goods, especially for bundled contracts or subscriptions with both digital and physical pieces.

• Register for a seller’s permit: You need a seller’s permit if you sell anything taxable in California, even occasionally. This is separate from any general business license and required even if services make up most of your revenue.

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• Digital goods and services in all US states and over 100 countries

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Stripe Tax can help you:

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FAQs about when services are taxable in California