CDTFA Rate Changes & Compliance Alerts

As the government returns to full operational status, California businesses are once again squarely on the radar of the California Department of Tax and Fee Administration (CDTFA). With new sales-and-use tax rate changes taking effect, heightened enforcement activity, and several compliance updates quietly released through CDTFA bulletins, now is the time for businesses to get ahead of the changes rather than react to them during an audit. See our firm’s August 6, 2025 blog post on what to do if CDTFA issues an audit and sends a notice.

Whether you are a retailer, e-commerce seller, contractor, professional services provider, or out of state business delivering goods into California, these updates may impact your tax obligations for the remainder of 2025 and into 2026.

CDTFA issued multiple Tax Information Bulletins announcing new district sales-and-use tax rates taking effect July 1, 2025 and again on October 1, 2025. Because California allows cities, counties, and special districts to add their own taxes, the total rate in some jurisdictions is changing.

Now that normal government operations have resumed, CDTFA is signaling a renewed focus on audits, nexus enforcement, and sales-tax compliance reviews. Recent CDTFA announcements also show increased auditor hiring and expanded enforcement resources, two clear indicators that more businesses might be contacted in the coming months.

Who is most at risk

Cash-heavy businesses, e-commerce retailers, out-of-state businesses shipping into California, construction contractors, businesses reporting exempt sales, and entities with inconsistent district taxes on returns. Minor errors, such as using outdated district rates, can be treated as negligence, resulting in penalties, interest, and back-tax assessments.

Why this matters for your business

Even a small rate change can trigger under-collection or over-collection of sales tax. Refer to the CDTFA’s Publication on Collection Procedures for more information. Businesses are responsible for charging the correct district rate based on the location of the sale or delivery, not just the state base rate. Out of state businesses with California customers (including online retailers) must also update their tax-collection systems to avoid CDTFA penalties.

Next steps

Be sure to update your POS systems, accounting software, and invoice templates before the effective dates, if not already. Verify rates based on customer delivery address, not billing address, as these might differ. For businesses with multiple locations, confirm each location’s correct district tax rate.

What businesses can do to plan for 2026

With multiple rate changes, rising enforcement levels, and expanded nexus obligations, businesses operating in California need to be more proactive than ever. The CDTFA has made it clear: errors in tax rate application and recordkeeping will be penalized, whether or not they were intentional.

Now is the ideal time to conduct a sales tax health check or internal audit, review nexus exposure (especially for e-commerce and multi-state businesses, correct outdated systems, and ensure staff are trained on the new rules and sourcing requirements.

At Wilson Tax Law Group, APLC, we help businesses with sales and use tax audits, CDTFA appeals, nexus analysis and multi-state exposure, tax-rate reviews and compliance planning, voluntary disclosure programs, and more. If you’re unsure whether your business is prepared for California’s new tax environment, we can help you review your systems, reduce risk, and avoids costly penalties before CDTFA comes calling.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s)/tax liabilities or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.