California Sales Tax on Services: What Is Taxable
California taxes goods, not services, but repair parts, fabrication, photos, shipping, software and service charges have their own rules.
Most services aren't subject to California sales tax. The tax (7.25% statewide plus local district taxes) applies to sales of tangible goods. The exceptions come where a service involves goods: parts in a repair job, fabrication of a product, photographs, "handling" fees, physical copies of software, and mandatory service charges at restaurants.
The basic rule: goods, not services
California's sales tax is a tax on retailers for selling tangible personal property. Consulting, legal and accounting work, personal services such as haircuts, cleaning, tutoring and most professional services are not taxed.
When a job involves both, the California Department of Tax and Fee Administration (CDTFA) asks what the customer is really buying: the service, or the property the service produces (the "true object" test in Regulation 1501). A tax preparer who hands you a printed return is selling a service. A print shop that prints your banner is selling a product.
Where services and goods meet
| Charge | Taxable? |
|---|---|
| Repair or installation labor | No |
| Parts used in a repair (over 10% of the bill, or listed separately) | Yes |
| Fabrication: making or altering a product for a customer | Yes, including labor |
| Photographs and photocopies | Yes, including labor |
| Shipping by mail or common carrier, listed separately | No, up to the actual cost |
| "Handling" fee | Yes |
| Software downloaded with no physical media | No |
| Software on a disk or drive | Yes |
| Mandatory warranty bought with the item | Yes |
| Optional service contract | No |
| Mandatory restaurant service charge | Yes |
| Voluntary tip | No |
Repairs and installation
Labor to install or repair something isn't taxed (Regulation 1546). The parts are another matter. If the parts and materials are worth more than 10% of the total charge, or the repairer bills them separately, the repairer is selling them and must charge tax on their retail price. The invoice has to show parts and labor separately; auto repair shops must do this by law. At 10% or less, with no separate charge, the repairer is the consumer of the parts and pays tax when buying them, and the customer pays no tax.
Example: a $400 appliance repair with $120 of parts. The parts are 30% of the bill, so tax applies to the $120 of parts, not the $280 of labor.
Fabrication and custom work
Labor that produces or changes a product is taxable, even when the customer supplies the materials (Regulation 1526). Examples include custom manufacturing, printing, engraving and assembling an item to order. The line is between creating a product (taxable) and repairing or reconditioning an existing one to its original use (labor not taxable).
Photographers
Photographs are taxable whether or not they're made to order, and so are photocopies (Regulation 1528). Expenses such as travel time, assistants, models or equipment rental can't be split out to reduce the tax, even if they're itemized on the bill.
Shipping and delivery
A separately stated charge for shipping directly to the buyer by mail or a common carrier is not taxable, up to the seller's actual cost (Regulation 1628). A charge labeled "handling" is taxable, and for "shipping and handling" only the actual postage or freight part is exempt. Delivery in the seller's own vehicles follows different rules.
Software and digital products
Prewritten ("canned") software transferred electronically, where the buyer gets no disk, drive or other physical media, is not a taxable sale (Regulation 1502). The same program on physical media is taxable. Installation of software by the seller on the customer's computer is generally not taxable unless the seller hands over storage media or it's part of a computer sale.
Warranties and service contracts
If the buyer must buy the warranty to get the item, its price is part of the taxable sale. An optional service contract isn't taxed as part of the sale; instead, the company doing the repairs pays tax on the parts it uses (Regulation 1655).
Restaurants: tips and service charges
A tip the customer chooses to leave isn't taxable. A mandatory payment, whether called a tip, gratuity or service charge, is part of the taxable sale, even if all of it goes to the staff (Regulation 1603(h)). Since 2024, California's junk fee law also requires such mandatory charges to be included in the menu price or clearly disclosed; see the junk fee law guide.
Do you need a seller's permit?
A business that only provides services usually doesn't. One that also sells goods, or bills parts over the 10% line, does. The Seller's Permit Checker tells you which applies, and the district rate lookup gives the rate to charge. See also how to calculate California sales tax.
Frequently Asked Questions
Does California charge sales tax on services?
Generally no. California sales tax applies to sales of tangible goods. Pure services, such as consulting, accounting, haircuts, cleaning, legal work or tutoring, are not taxable. Tax comes in when goods change hands as part of the job.
Is labor taxable in California?
Installation and repair labor are not taxable. Labor that makes or changes a product for a customer (fabrication) is taxable, even when the customer supplies the materials.
Are repair parts taxable in California?
Yes, usually. If the parts are worth more than 10% of the total repair charge, or are billed separately, the repairer is the retailer and charges tax on the parts, but not on the labor.
Is software or a digital download taxable in California?
Prewritten software delivered electronically, with no disk or other physical media, is not taxable. The same software on a disk or USB drive is. Custom software written to order for one customer is not taxable in any form, apart from basic operational programs.
Is a restaurant service charge taxable in California?
A mandatory service charge or automatic gratuity is taxable. A tip the customer chooses to leave is not.
This article is for general information only and is not tax advice. Sources: CDTFA Business Taxes Law Guide, Sales and Use Tax Regulations 1501 (service enterprises), 1502 (computers and software), 1526 (producing and fabricating), 1528 (photographers), 1546 (installing and repairing), 1603 (food products, tips and service charges), 1628 (transportation charges) and 1655 (warranties).