Sales tax in California state

Find out interesting insights with Jon Naseath, COO/Founder Cantu Capital, Inc

Moderated by Kate, Financial Technology Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Kate: Hello, everyone! My name is Kate, and I’m a financial technology advisor here at Hyperbots. Today, I’m thrilled to have Jon Naseath with me. Hey, Jon, how are you doing?

Jon Naseath: Hey, Kate, doing good. How are you doing today?

Kate: I’m doing wonderful. So Jon is the COO at Cantu Capital, Inc. Today, Jon and I will be discussing the complexities of California sales tax regulations and how companies can stay compliant. Let’s dive right in. Coming to the first question, Jon, can you provide an overview of California sales tax rules, particularly on which goods and services are taxable, and which are exempt?

Jon Naseath: Sure, and I’ll just start by saying that California is a fun place to do business. There are always lots of different regulatory considerations, and the more the government tries to help, in many ways, it just becomes more complicated for accounting. A lot of times, that turns into more money, anyway. So I’ll get off my soapbox. But sure, California sales tax rules are complex. One main example is that most tangible goods are taxable, like electronics, clothing, and vehicles—your normal physical products. However, essential items like groceries and prescription medicines are exempt. They’ve wanted to make it so that people can buy the food they need and have kind of an influenced benefit on those versus other things. Like many jurisdictions, California uses tax policy to try to influence behavior. Prepared foods at restaurants are taxable, but unprepared foods are not. You’ve probably seen this where a restaurant asks if you’re eating in or taking it out; different tax rules can apply. It gets pretty complicated. Services are not typically taxed unless they involve creating or modifying a tangible good. For example, repairs on appliances are taxed because they involve a tangible outcome. It’s a bit complicated, but California isn’t unique. I’ve done business in places like China and India, where we faced similar complexities. Brazil, as everyone knows, is a particularly challenging place for taxes. Just the concept of having multiple layers of local, state, and federal regulations makes it tricky. Today, we’ll pick on California, but if any California regulators are listening, it’s not personal!

Kate: Understood. Moving on, how does California’s sales tax rate vary across different jurisdictions?

Jon Naseath: California has a base sales tax rate of 7.25%, but local cities, counties, or districts add additional rates on top of that. It can fluctuate a lot based on where you’re living. For example, Los Angeles and Santa Monica have a combined rate of 10.25%, while more rural areas like Lassen County only apply the state minimum tax. I’m from California—my dad was from Lassen County. I grew up in San Diego, and we always joked that anything north of San Diego was “Northern California.” Regional differences are significant. For instance, gasoline taxes are piled on heavily in California, which makes a big difference in overall costs.

Kate: I see. How frequently do these sales tax rates change, and what triggers these changes?

Jon Naseath: They change too often! Anytime regulators see an opportunity to generate more revenue, they might introduce a new tax or adjust an existing one. It’s tricky to know when these changes go into effect, as they might be announced far in advance. These changes usually occur quarterly or annually, often aligning with the fiscal year. In urban areas, local governments frequently adjust taxes to fund projects. Around the New Year, for instance, there’s always a cycle of news announcing new laws and taxes coming into effect. It’s a common theme—localities are always looking for new revenue streams.

Kate: That’s an interesting point. What challenges do businesses face in keeping up with these changing sales tax rates?

Jon Naseath: Managing taxes in a jurisdiction with frequent changes is tough. If you’re operating in hundreds of local jurisdictions, each with independent and aggressive tax rules, staying compliant can be a nightmare. Manually tracking these changes is nearly impossible, especially for businesses with high transaction volumes across multiple areas. Mistakes can be costly. If your processes aren’t up to date, you risk audits, penalties, and underpayment issues. However, if you can demonstrate solid processes and systems, regulators are usually more lenient, even if there’s a discrepancy.

Kate: Makes sense. Where can companies find reliable information on California sales tax rates and updates?

Jon Naseath: The California Department of Tax and Fee Administration (CDTFA) is the primary source for current sales tax rates and regulations. They provide a city and county tax rate lookup tool, updated quarterly. Beyond that, tax compliance platforms like Hyperbots or Avalara’s AvaTax can help businesses automate the process and ensure compliance in real-time.

Kate: That’s helpful. Can you provide an example of how a business might use these resources to stay compliant?

Jon Naseath: Sure. Let’s say a retail company operates in multiple California cities like Carlsbad, San Francisco, and Lassen County. They could use Hyperbots or Avalara to automatically apply the correct tax rates for each location. These tools are consistently updated, so the company doesn’t need to manually verify rates every quarter. If a new tax rate is applied to a specific zip code, the tool adjusts transactions in real-time and feeds accurate data into the ERP system. This reduces the risk of under or over-collecting taxes and simplifies compliance.

Kate: That’s a fantastic example. How can AI help businesses manage these complexities, especially in a state like California with high tax variability?

Jon Naseath: AI excels at processing large volumes of data, updating tax rates in real-time, and ensuring accurate application across transactions. Tools like Hyperbots leverage AI to track updates from CDTFA, notify teams of changes, and calculate rates based on zip codes and product types. AI reduces manual intervention, minimizing errors and allowing businesses to focus on strategic goals rather than administrative burdens.

Kate: That’s impressive. Finally, are there any specific AI tools or features you’d recommend for managing sales tax compliance?

Jon Naseath: I’d recommend Hyperbots and Avalara’s AvaTax. They’re both excellent at handling tax rate calculations and compliance across multiple jurisdictions. These tools use AI to integrate seamlessly into business processes, ensuring that sales tax rates are applied accurately and up-to-date in real-time.

Kate: Thank you so much, Jon. This has been a very enlightening discussion.