Use tax is the compliance counterpart to sales tax. Many businesses underreport use tax — not from intent, but from misunderstanding the scope. CDTFA use tax audits are a meaningful category of assessment. This chapter walks through the four use tax scenarios.

For sales tax overview, see What is California Sales Tax?. For nexus rules, see Sales Tax for Out-of-State Retailers.

California use tax is the companion to sales tax: you owe it when you buy tangible goods for use in California without paying California sales tax — most commonly purchases from out-of-state or online retailers that didn’t collect it, and vehicles, vessels, or aircraft bought from private parties. The rate is the same as the sales tax rate where you live. Individuals typically report it on the use tax line of their Form 540; businesses report it on their CDTFA returns — and the CDTFA finds unreported use tax through DMV registrations, customs records, and audits.

The Four Use Tax Scenarios

CommonOut-of-State Purchase
E-CommerceOnline Purchase
BusinessBusiness Use
Self-UseConverted Inventory

Use tax scenarios.
Scenario Typical Use Tax Obligation2
Out-of-State Purchase Purchased without CA sales tax; subject to use tax on use in CA
Online Purchase (non-registered seller) Same — use tax on CA use
Business Use Business purchases for own use trigger use tax
Converted Inventory Resale inventory converted to personal or business use

Quick Reference

Jump to scenario: out-of-state, online, business use, or converted inventory. 15-min consultation free.

1. Out-of-State Purchase

Tangible personal property purchased outside California and brought into California is subject to use tax unless an exemption applies.

If this is you: You purchased equipment, vehicles, or goods out-of-state and brought them into California. Use tax is owed at the California rate. Out-of-state seller’s tax does not satisfy California use tax.

Out-of-State Purchase Strategy

  1. Track out-of-state purchases.
  2. Identify California use.
  3. Report use tax on CDTFA return (business) or CA income tax return (individual).
  4. Retain out-of-state purchase documentation.
  5. Apply credit for out-of-state sales tax actually paid.

2. Online Purchase

Purchases from online sellers not registered with CDTFA trigger California use tax. Marketplace facilitators (Amazon, eBay) generally now collect sales tax on California sales, but smaller online retailers may not.

If this is you: Online purchases without California sales tax. Use tax is owed. California has use tax lookup tables for individuals with small purchase volumes; businesses track exact amounts.

3. Business Use

Business purchases for own use — equipment, supplies, vehicles — trigger use tax unless an exemption applies.

If this is you: Business acquiring equipment or supplies for own use. Use tax applies. Resale exemption does not apply to own-use acquisitions.

4. Converted Inventory

Inventory originally purchased for resale but converted to personal or business use triggers use tax. The resale exemption is conditional on actual resale.

If this is you: Your business bought inventory under resale certificate but used some items internally. Use tax is owed on the converted inventory at its cost basis.

CDTFA reviewing your use tax? Use tax audits are common in construction, manufacturing, and retailer-dealer context. Book a consultation.

Use tax follows the same combined rate as sales tax at your location — the 7.25% base plus district taxes, which changed again in several counties on April 1, 2026. Verify your address’s current rate with the CDTFA rate lookup before self-assessing.

CA Use Tax Document Lookup

CA use tax references.
Document Purpose
CDTFA Form BOE-401-A2 Sales/Use Tax return
CA Income Tax Return Line 91 Individual use tax reporting
Publication 110 California Use Tax Basics
Publication 52 Out-of-State Purchases
RTC §6201 Use tax statute
RTC §6401 Exemptions

Use Tax Statute

  • 3-year CDTFA audit statute.
  • 8-year for substantial understatement.
  • Unlimited for non-filing or fraud.
  • 3-year refund claim statute.

Use Tax Audit Rates

Use tax audit focus areas. Source: Brotman Law practice.
Industry / Scenario Use Tax Audit Risk
Construction contractors High
Manufacturing equipment High
E-commerce retailers Moderate
Retailers with resale certificate misuse Elevated
Vehicle purchases out-of-state Routine review

Use Tax Escalation Pathway

Return to Audit

CDTFA sales tax audits routinely examine use tax compliance.

Assessment to Petition

Notice of Determination. 30-day petition window.

Appeals

CDTFA Appeals to OTA to Superior Court.

First 48 Hours of Use Tax Matter

  1. Identify out-of-state / online / converted-inventory purchases.
  2. Compute use tax owed.
  3. File on CDTFA return or amended CA return.
  4. Respond to CDTFA inquiries through counsel.
  5. Retain purchase documentation.

★
Brotman Law has been recognized by Inc. Magazine as one of California’s fastest-growing law firms. We handle use tax audits for California businesses. Our office is based in San Diego.

The ROI Question

Use tax audits frequently produce six-figure assessments. Professional defense — particularly on resale certificate disputes — typically saves multiples of the fee.

If you received a California CDTFA use tax audit notice or assessment:

California use tax audits are often triggered by CDTFA inquiry letters that look routine — but the response window matters and errors in the initial response are hard to walk back. A free 15-minute call covers what the notice actually means, whether your records support your position, and what CDTFA can realistically do from here.

Talk to Sam About Your Use Tax Notice — Free →    Or call: (619) 378-3138

When to Engage Attorney

  • Use tax audit notice.
  • Construction or manufacturing business.
  • Resale certificate dispute.
  • Large out-of-state equipment purchase.

Any of the above apply?

15-minute consultation is free.

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