On Dec. 11, 2018, the California Department of Tax and Fee Administration released Special Notice L-565 addressing remote use tax collection requirements for out-of-state retailers.
The notice explains that effective April 1, 2019, remote retailers are required to collect California 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
Accordinglyhe , the department considers any remote retailer reaching those thresholds to be “engaged in business” under the recent U.S. Supreme Court’s decision in South Dakota v. Wayfair and existing California law. The notice also explains that the collection requirement will not be applied retroactively.
Remote retailers meeting or exceeding the sales or transaction thresholds will need to register with the department by April 1, but may voluntarily register and collect before that date.
Additionally, retailers selling into California face a wide-range of local and district tax rates. The state base sales tax rate is 7.25 percent, but additional district rates may range from .1 to 1 percent. Special Notice L-591 explains that a retailer whose sales into a district exceed either the $100,000 sales or 200 or more separate transactions thresholds in the preceding or current calendar year, will be considered to be “engaged in business” in the 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 collected district tax to the CDTFA on their sales and use tax return. If a retailer is not engaged in business in a district, then the customer is liable for the district use tax on tangible personal property purchased for storage, use, or other consumption in that district. However, retailers may voluntarily collect the district use tax. Sales and use tax rate information is available on the department’s website.
The economic sales tax nexus guidance was highly anticipated and comes after department officials made comments on several occasions that the South Dakota thresholds would be adopted. Draft legislation previously proposed a single $500,000 sales threshold, but the state’s legislative session ended before the proposal could be addressed. The California State Legislature could consider economic sales tax nexus legislation in the 2019 session, replacing or modifying the department’s guidance.
California is one of the few larger states to address an enforcement date for economic sales tax nexus, as Florida and New York have yet to confirm enforcement. Over 30 other states have addressed an enforcement date for economic sales tax nexus, with several states becoming effective on Jan. 1 and Feb. 1, 2019.
As the 115th Congress comes to a close in the next few weeks, at least eight federal proposals are pending that could effectively reverse the Wayfair decision or delay state enforcement of remote sales tax collection. However, congressional enthusiasm for state tax legislation has historically been low and there are only a few days left in session to address the proposals.