California sales tax exemptions cover a defined list of purchases: most groceries, prescription drugs and prescribed medical devices, utilities delivered through mains and pipes, certain agricultural inputs, goods bought for resale, property shipped out of state, sales to the U.S. government, some school and charitable sales, qualifying manufacturing and R&D equipment (partially), and occasional non-business sales. Nonprofit status by itself is not one of them. For most exemptions, the seller needs a properly completed resale or exemption certificate on file, or the seller owes the tax.
Groceries and Food for Home Consumption
Revenue and Taxation Code Section 6359 exempts grocery-type food: produce, meat, dairy, canned goods, cereal, coffee, and most non-carbonated beverages including juice and bottled water.1California Legislative Information. California Code RTC 6359 – Food Products Alcohol and carbonated drinks stay taxable.
Prepared food is where people get tripped up. The exemption disappears when food is sold hot, served for on-site consumption at tables or counters, or sold at a location with parking set aside for customers to eat. That parking rule catches drive-throughs: a “to go” order can still be taxable if the location has designated eating areas with parking. Grocery store versus restaurant is the rough dividing line, with plenty of edge cases in between.1California Legislative Information. California Code RTC 6359 – Food Products
Prescription Medicines and Medical Devices
Prescription medicines are exempt when prescribed by an authorized professional and dispensed by a licensed pharmacist, or furnished directly by a physician, dentist, or podiatrist to their own patient. The exemption also reaches medicines sold to hospitals and health facilities for patient treatment, and medicines sold to state and local government entities for treating people.2California Department of Tax and Fee Administration. California Revenue and Taxation Code 6369 – Prescription Medicines
The Section 6369 definition of “medicines” is narrower than most people expect. It covers substances applied to the body to diagnose, treat, or prevent disease, and it specifically excludes prosthetic devices, orthotic devices, hearing aids, and ophthalmic appliances.2California Department of Tax and Fee Administration. California Revenue and Taxation Code 6369 – Prescription Medicines Those devices are covered separately. CDTFA Regulation 1591 provides an exemption framework for prosthetics, orthotics, artificial limbs, and related items.3California Department of Tax and Fee Administration. Regulation 1591 – Medicines and Medical Devices Both prescription drugs and prescribed medical devices end up exempt, just under different rules.
Gas, Electricity, and Water
Utility services delivered through mains, lines, or pipes are exempt: gas, electricity, water, steam, geothermal steam, and related heat energy.4California Legislative Information. California Code RTC 6353 – Gas, Electricity, and Water Liquefied petroleum gas (propane) delivered to a primary residence not served by gas mains also qualifies, provided the delivery goes into a tank of at least 30 gallons. Propane used in agricultural production qualifies too.
This is a state sales tax exemption only. Cities and counties can still impose their own utility users tax, which is a separate charge.
Agricultural Inputs
Section 6358 exempts agricultural purchases that tie back to food production or commercial sale:
- Livestock whose products ordinarily become food for human consumption.
- Feed for those food-producing animals, or for animals sold in the regular course of business.
- Seeds and plants whose products ordinarily become food, or that are sold commercially.
- Fertilizer applied to land producing food or commercial products.
- Drugs and medicines, including oxygen, used primarily to prevent or control disease in food-producing livestock.
The connection to human food or commercial sale is what qualifies the purchase.5California Legislative Information. California Code RTC 6358 – Agricultural Exemptions Seeds for a home flower garden don’t qualify.
Downloaded Software and Digital Products
California sales tax reaches tangible personal property. When software, eBooks, apps, digital images, or similar electronic files are transmitted entirely over the internet with no physical medium involved, the sale is generally not taxable.6California Department of Tax and Fee Administration. Internet Sales Publication 109 – Nontaxable Sales
Delivery method controls the outcome. Downloading an app or streaming software through a browser: no tax. But if the seller also ships a backup flash drive or a printed copy along with the digital transfer, the whole sale becomes taxable. The same applies to prewritten software: a download is exempt, a boxed copy on physical media is not.6California Department of Tax and Fee Administration. Internet Sales Publication 109 – Nontaxable Sales Cloud-based software follows the same logic, since nothing tangible transfers.
Purchases for Resale
Sales tax is meant to hit the final retail sale, not each step in the supply chain. A business buying inventory to resell doesn’t pay tax on that purchase. Instead, the buyer gives the seller a resale certificate, and tax gets collected when the end customer eventually buys the product.
The exemption applies when the buyer intends to resell the property in its current form or as a component of another product it will sell. The certificate must include the purchaser’s name and address, seller’s permit number, a description of the property, a statement that the purchase is for resale, the date, and the purchaser’s signature.7Taxes.ca.gov. Resale Certificates A seller who accepts a valid certificate in good faith from someone who plausibly deals in that type of property is protected from liability if the buyer later misuses the goods.8California Legislative Information. California Revenue and Taxation Code 6092
Property Shipped Out of State
Property shipped out of California as part of the sale is generally exempt. Two things have to be true: the sales contract itself must call for out-of-state delivery, and the seller must ship using its own vehicles or a carrier, customs broker, or forwarding agent.9California Department of Tax and Fee Administration. Regulation 1620 – Interstate and Foreign Commerce The buyer picking up goods in California and driving them across the state line does not qualify.
Exports abroad face stricter rules. The property must be irrevocably committed to the export process at the time of sale and actually delivered to the foreign destination before anyone uses it. Divert or use the goods in California first, and the exemption fails.
Sales to the U.S. Government
Section 6352 exempts sales that California is constitutionally or federally barred from taxing. The main application: sales made directly to the United States government and its agencies, which are protected under the federal Supremacy Clause.10California Legislative Information. California Code RTC 6352 – Exemptions
The exemption does not carry over to private contractors on federal projects. When a construction company buys materials and fixtures to install on a federal contract, the contractor is treated as the end consumer, and sales tax applies to those purchases.11California Department of Tax and Fee Administration. Sales to the United States Government Publication 102 – Federal Contractors The government can buy tax-free; the contractor building for the government cannot.
Schools and Charitable Organizations
Being a nonprofit does not by itself exempt an organization from California sales tax. Churches, charities, and educational groups generally owe tax on retail sales and purchases like anyone else.12California Department of Tax and Fee Administration. Sales and Use Tax Annotations – 165.0000 Charitable Organizations The exemptions that do exist are narrow.
Meals and food products served to students by public or private schools, school districts, student organizations, and parent-teacher associations are exempt. Cafeteria meals on school grounds qualify. Food sold at events with paid admission does not, except at national and state parks.
Charitable organizations that qualify for the Section 214 welfare exemption and are engaged in relieving poverty can sell goods they’ve made, prepared, or assembled without collecting sales tax, provided the sales function as charitable assistance to the buyer.13California Department of Tax and Fee Administration. California Revenue and Taxation Code 6375 – Sales by Charitable Organizations A qualifying charity’s thrift store selling donated clothing to people in need fits. A humane society thrift shop selling goods to fund animal services likely does not, because the sale isn’t charitable assistance to the purchaser.12California Department of Tax and Fee Administration. Sales and Use Tax Annotations – 165.0000 Charitable Organizations
Manufacturing and R&D Equipment
Businesses primarily engaged in manufacturing, research and development, or electric power generation can claim a partial exemption on qualifying machinery and equipment under Section 6377.1. The exemption runs from July 1, 2014 through June 30, 2030, with the statute set to be repealed on January 1, 2031.14California Legislative Information. California Code RTC 6377.1 – Manufacturing, Power Generation, and Research and Development Equipment
Partial matters. The exemption eliminates the state portion of the tax, but local district taxes still apply, leaving an effective rate of 3.3125% plus any district taxes on qualifying purchases.15California Department of Tax and Fee Administration. Manufacturing and Research and Development Exemption Tax Guide Three conditions all have to be met: the buyer must be a “qualified person” primarily engaged in manufacturing or R&D, the property must be “qualified tangible personal property” (essentially machinery and equipment used in production), and the property must be used in a qualifying way.16California Department of Tax and Fee Administration. Tax Guide for Manufacturing, Research and Development, and Electric Power Equipment and Buildings Exemption The exemption is capped at the first $200 million in qualifying purchases per calendar year, and companies filing combined reports share the cap across the group.14California Legislative Information. California Code RTC 6377.1 – Manufacturing, Power Generation, and Research and Development Equipment
Garage Sales and Other Occasional Sales
Selling personal belongings at a garage sale, or making a one-time sale outside the regular course of business, is generally exempt under Section 6367. This is what keeps casual sellers from needing a seller’s permit each time they unload used furniture or old electronics.17California Department of Tax and Fee Administration. California Revenue and Taxation Code 6367 – Occasional Sales
Vehicles, vessels, aircraft, and mobilehomes that must be registered are carved out. Those sales are taxable regardless of how rarely you make them.17California Department of Tax and Fee Administration. California Revenue and Taxation Code 6367 – Occasional Sales
How to Claim an Exemption
The burden of proving a sale is exempt falls on the seller. Without documentation, the seller owes the tax. Two documents do most of the work: the resale certificate for purchases meant for resale, and an exemption certificate for exemptions based on the buyer’s identity or the item’s end use.
A resale certificate needs the purchaser’s name and address, seller’s permit number, a description of the property, an explicit statement that the purchase is for resale, the date, and the purchaser’s signature.7Taxes.ca.gov. Resale Certificates Sellers keep these on file. Exemption certificates follow the same idea for other exemption categories: a government agency, a qualifying nonprofit, or a manufacturer claiming the partial equipment exemption gives the seller a completed certificate documenting the basis for not collecting tax.
Penalties for Misusing a Resale Certificate
Handing over a resale certificate to buy something you don’t intend to resell is not a gray area. Anyone who issues a resale certificate knowing the property will not be resold owes the full tax that would have been due, plus a penalty of 10% of the tax or $500, whichever is greater, for each improper purchase.18California Department of Tax and Fee Administration. California Revenue and Taxation Code 6094.5 Corporate officers and employees who issue the certificate on behalf of a business are exposed the same way.
Penalties can stack. Failing to report and pay the use tax on the property brings an additional 10% negligence penalty, or 25% for fraud, on top of the original fine.19Legal Information Institute. California Code of Regulations Title 18 Section 1668 – Sales for Resale Interest accrues from the date the tax was originally due. Audits routinely surface these issues when purchase records don’t match reported resales.