A provision in AB1815 dramatically narrows the sales tax base for factory-built housing—and expands what qualifies as 'factory-built.'
Most California retailers don't realize that a housing bill signed into law contains a significant sales tax provision that directly affects how tax is calculated on factory-built housing sales. AB1815, officially titled "Factory-built housing: building standards and local requirements," includes a buried change to the state's sales tax code that reduces the taxable base for these products.
Under AB1815's amendment to Revenue and Taxation Code Section 6012.7 (enacted via SEC. 11), California sales and use tax on factory-built housing is now calculated on only 40% of the consumer sales price. This means 60% of the sale price is excluded from the tax base entirely. For any retailer or manufacturer selling factory-built housing, this effectively lowers the tax liability embedded in every transaction.
To illustrate: if a factory-built housing unit sells for $100,000, the sales tax is calculated only on $40,000 of that price, not the full amount. This is a substantial reduction in taxable revenue per sale.
The provision applies to sellers of factory-built housing, but AB1815 also expands the definition of what qualifies. The bill introduces a new category called "building assembly" under Revenue and Taxation Code Section 19966.1. This broadened definition means more products and construction methods now fall under the factory-built housing umbrella—and therefore qualify for the reduced tax base.
If your business manufactures, distributes, or sells modular homes, prefabricated housing components, or related building assemblies, you need to understand how this change applies to your sales and tax obligations.
AB1815 was enrolled on September 3, 2026. Under California law, bills without an explicit operative date become effective on January 1 of the following year. This means the sales tax provision takes effect January 1, 2027.
Retailers and manufacturers should begin reviewing their product classifications and sales processes now to ensure compliance when the law goes live. If your offerings fall within the expanded definition of factory-built housing or building assembly, you'll need to adjust how you calculate and report sales tax on those transactions.
Review your current product lines and sales to identify which items may qualify as factory-built housing or building assembly under the new definition. Consult with your accountant or tax advisor about how to properly classify sales and calculate the reduced tax base starting January 1, 2027. If you're unsure whether your products qualify, document your analysis—tax authorities may ask questions during audits.
The provision is real, the effective date is firm, and the tax impact is material. Don't wait until 2027 to sort this out.
Source: AB1815, Revenue and Taxation Code Section 6012.7 (SEC. 11), effective January 1, 2027.