California Sales and Use Tax: New Economic Nexus Requirements for Retailers Announced

Beginning April 1, 2019, out-of-state retailers selling above certain thresholds will be required to collect California use taxes on their sales into California. The recent U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. expands the tax collection obligations of certain retailers under California law. In Wayfair, the U.S. Supreme Court held that physical presence is no longer required to establish sales and use tax nexus.

Requirements for Certain Out-of-State Retailers

For out-of-state retailers, the new collection requirement applies if, during the preceding or current calendar year:

• the retailer's sales for delivery into California exceed $100,000; or

• the retailer makes sales for delivery into California in 200 or more separate transactions.

This new use tax collection requirement is not retroactive and applies only to sales made on and after April 1, 2019.

Registration Obligations

Retailers who are already required to be registered to collect California use tax prior to April 1, 2019, will see no change in their registration obligations. Retailers with a physical presence in California are still generally required to be registered with the California Department of Tax and Fee Administration (CDTFA). Retailers may choose to register and collect the tax prior to April 1, 2019. Retailers can register on the CDTFA website at https://www.cdtfa.ca.gov.

Impact on District Tax Collection Requirements for Out-of-State and In-State Retailers

Certain retailers selling above these thresholds in a single local jurisdiction (district) will also be responsible for collecting that district 's use tax. Beginning April 1, 2019, this responsibility will apply if, during the preceding or current calendar year:

• the retailer's sales into the district exceed $100,000; or

• the retailer made sales into the district in 200 or more separate transactions.

This requirement is not retroactive and applies equally to in-state and out-of-state retailers beginning April 1, 2019. An out-of-state retailer who reaches either of the above sales thresholds is engaged in business in California.

District taxes are the voter-approved sales and use taxes imposed by cities, counties and other local jurisdictions (districts). These district taxes are added to California 's base 7.25% sales and use tax rate to fund local services. Currently, retailers located in a taxing district are engaged in business in that district. A retailer is also engaged in business in a district where they have some form of physical presence under existing law.

Beginning April 1, 2019, any retailer whose sales into a district meet this threshold is:

• considered to be engaged in business in that district; and

• required to collect that district 's use tax on sales made for delivery in that district.

Retailers are required to report and pay any district tax to the CDTFA on their sales and use tax return. The CDTFA plans to begin the interested parties process for rulemaking next year.

News Release 18-59, California Department of Tax and Fee Administration, December 11, 2018; Special Notice L-591, California Department of Tax and Fee Administration, December 2018; Special Notice L-565, California Department of Tax and Fee Administration, December 2018; shared by CCH Incorporated on December 13, 2018.

If you have questions regarding this release or other Sales and Use Tax matters, please contact us at (253) 830-5450 or info@dotygroupcpas.com. The Doty Group is a full-service CPA firm offering Tax, Audit, Valuation, and Advisory Services to Business and Individuals in Tacoma, WA.