The California occasional sale exemption lets you sell personal property without collecting sales tax, provided your selling activity stays below the level of a business. Under Revenue and Taxation Code Section 6006.5 and California Department of Tax and Fee Administration (CDTFA) Regulation 1595, you can generally make up to two sales of substantial amounts within any 12-month period before the state treats you as a retailer who must register for a seller’s permit and collect tax on further sales.1California Department of Tax and Fee Administration. California Code 6006.5 – Occasional Sale2California Department of Tax and Fee Administration. Regulation 1595 – Occasional Sales
What Qualifies as an Occasional Sale
Section 6006.5(a) covers the everyday situation most people are asking about: an individual selling personal property that isn’t held or used in a business requiring a seller’s permit. A used couch, a lawnmower, a set of golf clubs, a bicycle sitting in the garage. When you sell items like these, California doesn’t require you to collect sales tax, as long as the sales stay infrequent enough that they don’t resemble a business.1California Department of Tax and Fee Administration. California Code 6006.5 – Occasional Sale
The exemption is about your relationship to the property, not the place where you sell it. Selling through Craigslist, Facebook Marketplace, eBay, or a driveway sale all fit the same rule. What matters is whether the item is genuinely personal, whether it was ever tied to a business you run, and how often you’re selling.
The Two-Sale Limit in Any 12 Months
CDTFA Regulation 1595 puts a concrete number on what the statute leaves open. Three or more sales for substantial amounts within any 12-month period generally require you to hold a seller’s permit.2California Department of Tax and Fee Administration. Regulation 1595 – Occasional Sales Your first two qualifying sales in any rolling 12-month window are exempt. The third sale, and every sale after it during that window, is taxable.
A common misreading of the rule is that hitting the third sale retroactively taxes the first two. It doesn’t. Regulation 1595 keeps the first two sales exempt and applies the permit requirement to the third sale onward.2California Department of Tax and Fee Administration. Regulation 1595 – Occasional Sales
The CDTFA looks at three factors when deciding whether your activity has crossed the line:
- Number. Three or more sales inside 12 months is the general trigger.
- Scope. The frequency and dollar volume of the sales. Three small transactions may not draw scrutiny; three high-value ones almost certainly will.
- Character. How similar the items are. Repeatedly selling the same kind of product looks like a business; unloading unrelated personal items looks like housekeeping.
Regulation 1595 uses the phrase “substantial amounts” without setting a specific dollar figure, which gives the CDTFA room to look at the whole picture. Selling a used bike for $50 three times is a different situation from selling three pieces of furniture for $2,000 apiece.
When the Exemption Doesn’t Apply
If You Already Hold a Seller’s Permit
Section 6006.5(a) limits the exemption to property “not held or used by a seller in the course of activities for which he or she is required to hold a seller’s permit.”1California Department of Tax and Fee Administration. California Code 6006.5 – Occasional Sale A restaurant owner selling kitchen equipment from the restaurant is making a taxable sale, not an occasional one. That same owner selling a personal kayak from home can still claim the exemption, because the kayak has no connection to the permitted activity.
The line matters. If you’ve ever claimed depreciation on an item or carried it as a business asset on your tax return, the CDTFA has a strong argument that it wasn’t personal property.
A seller’s permit itself is free in California, though the CDTFA may require a security deposit against potential unpaid taxes.3California Department of Tax and Fee Administration. Obtaining a Seller’s Permit Getting one when you don’t need it isn’t harmless: it puts you in the system as a registered seller, and every subsequent sale gets closer scrutiny.
Vehicles, Vessels, Aircraft, and Mobile Homes
The occasional sale exemption will not spare you from tax on a car, boat, airplane, or mobile home. California collects use tax on these items at the point of registration, regardless of whether the seller is a dealer or a private party.4California Department of Tax and Fee Administration. Tax Guide for Purchasers of Vehicles When you buy a used car from your neighbor, you pay use tax to the DMV when you transfer title. The seller collects nothing, and the buyer cannot avoid the tax by invoking the occasional sale rule.
California’s combined sales and use tax rate runs from 7.25 percent to 11.25 percent depending on where the buyer registers the vehicle.5California Department of Tax and Fee Administration. California City and County Sales and Use Tax Rates
Two carve-outs exist. Section 6281 exempts vehicles, vessels, aircraft, mobile homes, and commercial coaches transferred as part of a qualifying business reorganization that meets the same tests described below.6California Legislative Information. California Revenue and Taxation Code 6281 Section 6285 exempts transfers of these items between certain family members:
- Parents and children, including grandparents and grandchildren
- Spouses
- Siblings, but only if both are minors related by blood or adoption
The selling family member cannot be in the business of selling that type of property. A parent who runs a car dealership cannot use Section 6285 to move inventory to a child tax-free. Transfers to a revocable living trust also qualify, provided the seller keeps the power to revoke the trust and beneficial ownership doesn’t change.7California Department of Tax and Fee Administration. California Revenue and Taxation Code 6285 – Family
Business Reorganizations
Section 6006.5(b) is a separate occasional sale exemption aimed at businesses changing legal form. When a sole proprietor incorporates, partners form an LLC, or a corporation merges with another entity, the transfer of business assets to the new entity can qualify as an exempt occasional sale. Two conditions apply.
First, the transfer must include substantially all of the tangible personal property used in the business. Regulation 1595 defines “substantially all” as 80 percent or more of the tangible personal property held or used in the business, including property located outside California.2California Department of Tax and Fee Administration. Regulation 1595 – Occasional Sales Transferring the best equipment and selling the rest piecemeal will not satisfy this test.
Second, the real or ultimate ownership of the property must remain substantially similar after the transfer. The same people must hold roughly the same proportional interests before and after.1California Department of Tax and Fee Administration. California Code 6006.5 – Occasional Sale A sole proprietorship converted into a wholly owned corporation clears the test. Two 50/50 partners forming an LLC and each keeping 50 percent also works. Bring in a new investor who takes 40 percent, and the ownership picture has changed enough to put the exemption at risk.
What Happens If You Miss the Threshold
A seller who should have collected tax but didn’t faces a 10 percent penalty on the unpaid amount, plus interest that accrues monthly at a rate tied to the federal underpayment rate plus three percentage points.8California Legislative Information. California Revenue and Taxation Code 6591 That’s the baseline for an honest mistake. If the CDTFA finds that a seller collected sales tax reimbursement from a buyer and then failed to remit it, the penalty jumps to 40 percent of the unreported amount.9California Department of Tax and Fee Administration. Regulation 1703 – Interest and Penalties
For most individual sellers, the risk isn’t deliberate evasion but drifting past the threshold without noticing. Someone selling furniture, electronics, and sporting goods online over the course of a year may not realize their fourth or fifth sale required a permit months earlier. By the time the CDTFA identifies the activity, penalties and interest have been running.
Records to Keep
Documentation is the best protection if the CDTFA asks questions. For each sale, keep the date, a description of the item, the sale price, and how you acquired it. If you’re relying on the occasional sale exemption, the goal is to be able to show you stayed under three sales of substantial amounts in every rolling 12-month window.
For business asset transfers claimed under Section 6006.5(b), retain records showing that 80 percent or more of tangible business property moved to the new entity and that ownership percentages stayed consistent through the reorganization. Keep these records at least through the applicable statute of limitations for the year of the sale.