Updated: April 3, 2018
When calculating transaction tax in California, the total sales and use tax rate is composed of taxes levied at the State, County, and District level.
Given unique sourcing* distinctions at each level in California, different collection and reporting requirements exist between State, County, and District taxes. To report correctly, QBO splits out the State, County and District level taxes for each transaction. For example:
- The California state rate is 7.25%. For reporting purposes, QBO breaks this rate into two components – a 6.25% California State tax and a 1.00% County tax. If the transaction is subject to any additional County or City District taxes, these are shown separately.
Sales tax is calculated based on the California specific sourcing rule described below.
- The State and County taxes are based on the location of the Seller, while the District taxes are based on the location of the Buyer.
This seems straight-forward, but technically, the selling merchant only needs to collect the District taxes if the Buyer is located in the same District as the Seller. Otherwise, the Seller can choose not to collect the District taxes and rely on the Buyer to pay the District taxes if/when they file a use tax return. In practice, however, most Sellers collect the District taxes on behalf of their Buyers, regardless of where the Buyer and Seller are located.
To ensure that proper taxes are paid, QBO takes a practical approach and defaults to the sourcing rules above and calculates tax at all local levels. Translated more simply, State and County taxes are based on the Ship-from address, while District taxes are calculated based on the Ship-to address.
* See, US Sales Tax - Sourcing for a full explanation about what sourcing is and why it is important.