California to Enforce Remote Seller Tax Collection Requirements

Effective Date: April 1, 2019

Threshold: $500,000 (Previous $100,000 or 200 transactions threshold changed through new enacted legislation on April 25, 2019)

Measurement Date: Preceding or current calendar year

Includable Transactions: Gross sales

When You Need to Register Once You Exceed the Threshold: The day you exceed the threshold

The California Department of Tax and Fee Administration announced on December 11, 2018 that out-of-state retailers that exceed the state’s new economic nexus threshold will be required to collect California use taxes on their sales into the state. California has not yet passed any specific legislation to enforce this remote seller collection responsibility.

Beginning April 1, 2019, out-of-state retailers will be required to collect use tax, if during the preceding or current calendar year:

  • The retailer’s sales into California exceed $100,000; or
  • The retailer made sales into California in 200 or more separate transactions

Out-of-state retailers that exceed either of the thresholds are considered to be engaged in business in California pursuant to California Revenue and Taxation Code section 6203 and the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. A retailer engaged in business in California is required to collect California use tax from its customers on the retailer’s taxable sales of tangible personal property into the state.

You are considered to have met the above sales thresholds based on your total sales price of tangible personal property or total number of transactions, which may include nontaxable sales, such as sales for resale.

Additionally, there will be a district tax collection requirement for those sellers, both in-state and out-of-state, who exceed the $100,000 or 200 transaction threshold into a single local district. For example, for a Colorado seller, if you sold over $100,000 or 200 transactions into Los Angeles County you would have a district tax collection obligation but if you did not meet that threshold in neighboring San Diego county you would not be compelled to collect the San Diego district tax. Similarly, an in-state seller from Simi Valley in Ventura County exceeding the $100,000 or 200 transaction threshold into the city of Palm Springs in Riverside County, they would have a collection obligation for the Riverside County Transportation Commission District tax, the City of Palm Springs 2018 Transaction and Use Tax and the additional City of Palm Springs Transaction and Use Tax.

The new collection requirement will not be enforced retroactively; it will apply only to sales made on and after April 1, 2019. Retailers may voluntarily register and collect tax prior to the April 1, 2019 enforcement date.

For more information on California’s new use tax collection requirements due to the Wayfair decision, visit the CDTFA guide for out-of-state retailers. (Special Notice, California Department of Tax and Fee Administration, December 2018)

UPDATE: California changed its economic nexus threshold through enacted legislation on April 25, 2019. Effective April 1, 2019, the legislation changes California’s economic nexus threshold to be $500,000. The legislation amends the definition of “retailer engaged in business in this state” to include any retailer that, in the preceding or current calendar year, has total combined sales of tangible personal property for delivery in California by the retailer and all persons related to the retailer that exceed $500,000. This amendment does not have a retroactive effect. The economic nexus threshold is also applicable for purposes of local use taxes. Read our updated news item for more information.

Posted on December 12, 2018