Following the June U.S. Supreme Court decision in South Dakota v. Wayfair Inc. that expanded retailers’ tax collection obligations to e-commerce, the California Department of Tax and Fee Administration (CDTFA) announced that beginning April 1, 2019, out-of-state retailers selling above certain thresholds into California will be required to collect taxes on their sales.
The ruling in the country’s most-populous state follows actions by a majority of states that have implemented legislation or regulations since the Supreme Court said they had the right to collect sales tax from online retailers. New York has collected online sales tax since 2009 under a law that expanded the definition of a “vendor” to include online sellers. New Jersey changed its sales tax statute effective Nov.1. and Connecticut did so on Dec. 1.
The CDTFA said the notice also impacts in-state and out-of-state retailers’ obligations to collect and remit district use taxes adopted by California localities.
“Today ‘s announcement does not increase or create any tax,” CDTFA director Nick Maduros said. “Rather, California will now require more out-of-state retailers to collect and remit taxes just as brick-and-mortar retailers have done for decades. With the Supreme Court ‘s decision in Wayfair, California is able to help level the playing field for California businesses.”
The new tax collection requirement is not retroactive and applies only to sales made on and after April 1. 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 requirement will apply equally to in-state and out-of-state retailers. Many states have implemented similar thresholds to exempt small businesses.
The CDTFA said while the new requirement to collect California “use” tax applies only to sales on and after April 1, retailers can choose to register and collect the tax prior to that.
“We know the legislature is also looking closely at this issue and we look forward to working with them as we proceed,” Maduros said.
With the new regulations in place, certain retailers selling above the thresholds in a single local jurisdiction will also be responsible for collecting that district ‘s use tax. District taxes are the voter-approved sales and use taxes imposed by cities, counties and other local jurisdictions added to California’s base sales and use tax rate of 7.25 percent to fund important 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.