Every bag you hand across the counter this year leaves a few cents in your till that your tax return must treat differently from every other sale you made that day. In California, the dime you collect for a paper bag must never appear in your taxable sales — but in Washington, the 12 cents you collect for a plastic one must, plus sales tax on top. Get either treatment backwards and you will either overpay tax on thousands of dimes or under-collect tax you still owe.
Both states changed their carryout-bag rules on January 1, 2026. Here is what changed, who keeps the money, and how to set up your books so bag charges never contaminate your revenue numbers.
What Changed on January 1, 2026
California: every plastic bag is gone
Senate Bill 1053 closed the loophole in California's original 2014 bag law. Starting January 1, 2026, covered stores may not provide any plastic carryout bag at checkout — including the thicker bags stores had been selling as "reusable" for a decade. The only bag you may offer at the register is a recycled paper bag, at a minimum charge of 10 cents each. You may charge more; most stores stick near the minimum.
The law covers grocery stores, retail stores with a pharmacy, convenience stores, food marts, and liquor stores — at checkout counters, self-checkout kiosks, in-store pickup, curbside delivery, and home delivery alike. Shoppers paying with WIC, CalFresh, SNAP, or other food-assistance benefits must receive bags at no charge. Receipts must show the number of bags and the total bag charge. One more deadline to diary: starting January 1, 2028, the paper bags you hand out must contain at least 50 percent recycled content, so confirm your supplier's spec sheet before you sign a long contract.
Washington: plastic bags now cost 12 cents
Washington went the other direction — same bags, higher price. On January 1, 2026, the minimum charge for a reusable plastic film carryout bag rose from 8 cents to 12 cents at restaurants and retailers statewide, while compliant paper bags stayed at 8 cents. Shoppers using WIC, SNAP, or state food-assistance benefits are exempt, and the charge must be separately stated on the receipt.
A companion law, ESHB 1293, made two adjustments worth knowing. First, it delayed the requirement that reusable plastic bags be 4 mils thick until January 1, 2028 — the current 2.25-mil minimum stays in place until then. Second, from January 1, 2026 through December 31, 2027, retailers that sell plastic reusable bags 4 mils thick or thicker must collect an additional 4-cent penalty per bag and deposit it into the state's waste reduction, recycling, and litter control account. That penalty is the one bag-related charge in either state that you do not keep.
Who Keeps the Money, and Why Your Books Care
The intuitive mistake is treating bag charges as ordinary sales. They are not — in either state, but for opposite reasons.
In California, you keep the 10 cents, but the charge is not part of your gross receipts for sales-tax purposes and no sales tax applies to it. The bag line on the receipt should read exactly 10 cents, with no tax added. Courts have upheld that the charge is not a tax precisely because the retailer keeps the money rather than remitting it to the government.
In Washington, you also keep the base charge — but the state calls it a pass-through charge that counts as a retail sale. That means you must collect retail sales tax on the 8 or 12 cents, report the charge under both the Retailing B&O tax and Retail Sales tax classifications, and then claim the Compliant Carryout Bag Charge deduction under Retailing B&O, which makes the charge B&O-neutral. The 4-cent penalty on thicker bags is different again: the Department of Revenue says it is not considered a sale at all, so you exclude it from your excise tax return entirely and hold it as an amount owed to the state.
| California paper bag (10 cents) | Washington plastic (12 cents) / paper (8 cents) | Washington 4-cent penalty (2026–2027) | |
|---|---|---|---|
| Who keeps it | You | You | The state |
| Sales tax | None — excluded from gross receipts | Collect retail sales tax on the charge | Not a sale — excluded from the return |
| B&O / income treatment | Ordinary business income, tracked separately | Report under Retailing B&O, then claim the bag-charge deduction | Liability payable to the state, never revenue |
The pattern to internalize: bag charges always need their own line in your books, because in no state are they plain merchandise revenue.
Setting Up Your Books the Right Way
You do not need new software for this. You need a dedicated bag-charge line in your point of sale and a matching account in your ledger, configured once and reconciled monthly.
1. Give bags their own SKU or department
Ring every bag charge to a dedicated code — "Bag charges" — rather than lumping it into merchandise sales or miscellaneous income. This single habit is what makes every other step possible: tax-exempt reporting in California, sales-tax collection in Washington, and cost matching in both states. If your POS supports departments with different tax flags, put bags in their own tax-exempt (California) or taxable-fee (Washington) department now.
2. California: verify the line computes zero tax
After setup, run a test transaction and confirm the receipt shows the bag count, the bag total, and no sales tax on the line. Then confirm your sales-tax reports exclude the bag department from taxable sales. The most common California error is a POS that defaults new SKUs to taxable — a silent over-collection on every bag that creates refund exposure rather than a windfall.
3. Washington: tax the charge, claim the deduction, park the penalty
Your Washington setup has three moving parts. First, the POS must add retail sales tax to the bag line, since the customer owes tax on the charge. Second, each filing period, report bag-charge receipts under Retailing B&O and Retail Sales, then take the Compliant Carryout Bag Charge deduction so you pay B&O on none of it — forgetting the deduction is the single most expensive Washington mistake. Third, if you sell thicker bags subject to the 2026–2027 penalty, accrue those 4-cent increments in a separate payable account ("Bag penalty payable — state"), not in revenue, and remit them to the litter-control account on schedule.
4. Match bag costs against bag collections
The charges exist to cover the cost of the bags, so track both sides. Book bag purchases to a packaging-supplies expense account — not generic office supplies — and compare monthly spend against monthly collections. Paper bags typically cost you more than the 10-cent minimum, which means the account usually runs at a small loss; that is expected, but you want the number visible rather than buried. A store handing out 3,000 bags a month at a 4-cent net cost is spending about $120 a month on the gap — small enough to ignore until a price increase doubles it.
5. Train staff on the food-assistance exemption
Both states exempt shoppers paying with food-assistance benefits. That means your team needs a zero-charge bag flow that still records a bag count, because "we gave away bags for free" and "we gave away no bags" look identical in a system with no exempt-bag button but very different to an inspector. A distinct tender key or discount code keeps the counts honest.
6. Keep the receipt line itemized
Both states require the charge to appear on the receipt — California wants the bag count and total, Washington wants the charge separately stated. An itemized line doubles as your audit trail: if your ledger's bag-charge account ties to the sum of receipt lines each month, you can answer any question about what you collected and what you did with it. If you use plain-text accounting, a monthly automated transaction that sweeps the POS bag total into its own account keeps this reconciliation one command away; the Beancount documentation covers scheduled-transaction patterns you can adapt for fee lines like these.
Mistakes That Cost Real Money
- Charging sales tax on California bag fees. Over-collected tax is not yours to keep. Fix the POS tax flag and review past periods for exposure.
- Not charging sales tax on Washington bag fees. The customer owes it, but if you fail to collect it, the liability is yours.
- Skipping the Washington B&O deduction. Reporting the charge without the offsetting deduction means paying B&O tax the legislature specifically excused.
- Booking the 4-cent penalty as revenue. It is state money from the moment you collect it. Spending it and discovering the shortfall at remittance time is an avoidable cash-flow crunch.
- Burying bag spend in generic supplies. When bag costs hide in a catch-all account, you cannot see the per-bag economics drifting against you — and you cannot prove the charges offset costs if anyone asks.
A Note on Income Tax
Sales-tax treatment and income-tax treatment are separate questions. The bag charges you keep — California's dime, Washington's 8 or 12 cents — are generally business income for federal and state income-tax purposes even where they are excluded from sales-tax gross receipts, and the bags you buy are generally an ordinary deductible expense. The separate ledger account you set up for sales-tax compliance serves income-tax time too: it documents exactly what you collected and what it cost you. As with any tax position, confirm the details with your preparer.
Keep Your Fee Income Organized From Day One
Carryout-bag charges are a small preview of a bigger truth: the more fee lines, surcharges, and pass-throughs your state adds, the more your books depend on clean separation between real revenue and money that merely passes through your register. Maintaining clear financial records with a dedicated account for each fee keeps tax time boring, which is exactly what you want.
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