California has a base state sales tax rate of 7.250%, which is one of the highest state-level rates in the United States (US). What's more, local jurisdictions—cities, counties, and special districts—have the authority to impose additional sales taxes. These local taxes vary but lead to an average combined state and local sales tax rate of 8.850% as of 2024.

The high base tax rate and the potential for additional local taxes reflect California’s commitment to funding a wide array of public services including health care, education, public safety, and environmental programs. The state's dependence on sales tax is compounded by its socioeconomic diversity and substantial public service needs across its vast geography, from densely populated urban areas, such as Los Angeles and San Francisco, to the more rural and economically diverse regions in the north and the valleys.

Below, we’ll explore how California applies sales tax to clothing, in particular, and what businesses operating in this state need to know to stay compliant.

What’s in this article?

• What is the sales tax rate in California?
  
• Is there sales tax on clothing in California?
  
• Is there sales tax on laundry services in California?
  
• Sales tax refunds in California
  
• How to automate sales tax collection in California
  

What is the sales tax rate in California?

The sales tax rate in California varies depending on the specific location, as it includes a base statewide rate of 7.250% plus additional local taxes. The combined sales tax rate in California can range from the base rate of 7.250% to 10.750% in some areas. Here are a few examples of combined rates in specific locations:

• Newark: 10.750%

• Pasadena: 10.250%

• Los Angeles: 9.500%

• Sacramento: 8.750%

• San Francisco: 8.625%

• San Diego: 7.750%

To determine the exact sales tax rate for a specific location in California, check the California Department of Tax and Fee Administration’s (CDTFA) website.

Is there sales tax on clothing in California?

There is sales tax on clothing in California. Unlike some states that have exemptions for clothing, California applies its standard sales tax to the sale of all clothing items. For example, if you buy clothing in Los Angeles, you would pay a combined sales tax rate of 9.500%, which includes the statewide rate and local district taxes.

Tax exemptions

There are some specific exemptions, including:

• Purchases for resale: Clothing purchased by retailers for the purpose of resale is not subject to sales tax at the point of purchase from the wholesaler. But the retailer must obtain a California Resale Certificate and collect sales tax when the clothing is sold to the customer.

• Nonprofit sales: New children’s clothing is exempt from sales tax when sold to a qualifying nonprofit organization for free distribution to children in elementary school. Clothing made by certain nonprofit organizations is also exempt.

Filing for exemption

To claim an exemption, the buyer or seller might need to provide specific documentation such as resale or exemption certificates.

• Resale certificates: Retailers purchasing clothing for resale must provide a resale certificate to the wholesaler. The certificate should include the buyer’s sales tax permit number and a statement that the purchase is for resale.

• Exemption certificates: In cases where specific exemptions apply, such as purchases by qualifying nonprofit organizations, an exemption certificate might need to be provided to the seller.

Businesses must maintain accurate records of all exempt sales, including the exemption certificates and any other relevant documentation. These records will substantiate the exemption in case of an audit by the CDTFA.

Is there sales tax on laundry services in California?

Cleaning services, including clothing cleaning services, are not taxed in California. Here's a breakdown of specific services that are exempt from sales tax:

• Self-service laundromats: Fees charged for the use of coin-operated laundry machines in self-service laundromats are generally exempt from sales tax, but any products sold to a customer, such as detergent or fabric softener, are subject to tax.

• Laundry services: Laundry services where the service is done for the customer are not subject to sales tax. This includes services where you drop off your laundry and pick it up after it has been cleaned.

• Dry cleaning: Dry cleaning services are not subject to sales tax in California. Charges for repairing and altering clothing are also not taxable in most cases. However, if a dry cleaner sells lint brushes, laundry bags, stain protection products, or other items, those sales must be taxed.

Sales tax refunds in California

In California, sales tax refunds can occur for the following reasons:

• Overpayment: If a business has overpaid its sales tax to the CDTFA, it might be eligible for a refund.

• Erroneous collection: If sales tax was collected in error (e.g., if tax was charged on a nontaxable item or service), the customer might be entitled to a refund.

• Returned merchandise: If a customer returns a taxable item, the seller must refund the sales tax paid along with the cost of the item.

How to obtain a sales tax refund

Here’s the process to obtain a sales tax refund, for businesses and consumers.

For businesses

Ensure the overpayment or error qualifies for a refund: Review sales records, returns, and payments to identify any discrepancies. Check that you’re within the required time limit: a claim for a sales tax refund must be filed within three years of the date the tax was paid, or within six months of the date of an overpayment determination by the CDTFA, whichever is later.

• Submit a claim to the CDTFA: You can submit your claim through the CDTFA’s online services portal or by mailing a completed “Claim for Refund or Credit” form (CDTFA-101). Attach all relevant documents that support your claim, including sales records, invoices, and proof of overpayment.

• Wait for the CDTFA to review the claim: The review process can take some time, depending on the complexity of the claim and the volume of claims being processed.

• Receive a refund: If the claim is approved, the CDTFA will issue a refund to your business.

For customers

• Reach out to the seller: If you believe you were incorrectly charged sales tax, contact the seller directly. Provide proof of purchase and explain why you believe the tax was incorrectly applied.

• Ask the seller to refund the sales tax: The seller will typically refund the tax along with the purchase price if the item is returned or if the error is verified.

How to automate sales tax collection in California

Stripe Tax is a comprehensive solution for managing sales tax collection, calculation, and reporting. Here’s an overview of how you can automate sales tax collection in California using Stripe.

Set up your Stripe account

• Create or log in to your Stripe account.

• Verify your business information including business name, address, and tax ID number.

Activate Stripe Tax

• In the Stripe Dashboard, go to “Settings” and select “Tax.”

• Click on “Activate Stripe Tax” and enter any requested information.

Configure tax settings for California

• Register for sales tax in California through the CDTFA, if you haven’t already.

• Go to “Settings,” then “Tax,” and then “Registrations.” Add your California sales tax registration by providing the required details.

Define tax codes

• Assign tax codes to your products or services to help Stripe determine the correct tax rate for each item. Stripe has predefined tax codes that you can use.

• Go to “Products” in the Stripe Dashboard, select each product, and assign the appropriate tax code.

Go live

• Once you’ve confirmed that everything works correctly in test mode, switch your Stripe account to live mode.

• Regularly monitor transactions to ensure sales tax is being collected and reported correctly.

Reporting and compliance

• Use Stripe’s reporting tools to generate sales tax reports for California. This will help you file and remit sales tax to the CDTFA.

• File your sales tax returns with the CDTFA on time to stay compliant. Stripe’s reports can provide the necessary details for your filings.