In a recent survey, 1 in 5 businesses responding said they were 'very concerned' about the 2018 landmark Supreme Court Wayfair decision in terms of their business regarding sales tax compliance in the age of 'economic nexus.' Now, with an economy equal to the fifth largest in the world, California will soon be impacting many sellers outside their borders who do business in their state by finally implementing procedures to tax remote sales.
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We wanted to take this opportunity to make you aware of this important 'sales tax' news as it may very well impact your business if you do business with customers in California. And speaking of sales tax, I should tell you that this is Sales Tax Tuesday, a joint venture between Insightful Accountant and Avalara, the Sales Tax People.
Even though these Tuesday features are designed to cover the sales taxes in all 50 states, including those even without Sales Tax, a lot has gone on since we started our series in 2018. There has been a lot of breaking news about Nexus and the implications of eCommerce and ‘economic nexus’ legislation being imposed in various states resulting from last year’s Supreme Course Decision (also know as the ‘Wayfair case’). That means that many times we had to stop our state-by-state coverage and cover 'the news,' just as we are doing in today's edition, so let's get back to California nexus.
California is now, or soon to be, on the economic nexus band wagon. As of April 1, 2019 they will require out-of-state sellers with a certain amount of economic activity in the state to collect and remit sales tax in response to the Supreme Court decision in the South Dakota v. Wayfair, Inc. last June (June 21, 2018). California's economic nexus provisions allow exceptions for small sellers and only apply to out-of-state retailers that, in the current or preceding calendar year, have:
- More than $100,000 in taxable sales in California, or
- At least 200 separate transactions for delivery into California
- Marketplace sales are many times collected and remitted by the marketplace, if you sell via a E-commerce marketplace contact your marketplace for details on remittance responsibilities.
Retailers meeting any of these thresholds must register with the California Department of Tax and Fee Administration (CDTFA) and collect and remit tax on their sales of tangible personal property starting April 1, 2019.
All taxable sales will be subject to the California statewide sales tax rate of 7.25 percent, which includes a mandatory local sales and use tax rate. Sales may also be subject to other district sales taxes, which are imposed locally and may vary (significantly) from location to another.
California sales tax doesn’t generally apply to services unless the service is an integral part of personal property which is sold. Digital goods and services are also not generally subject to California sales tax unless a tangible copy goes along with the 'digital copy,' then such tangible copy is considered personal property and is taxable.
Additional provisions may trigger 'nexus' and/or may limit 'nexus' and are beyond the scope of this discussion. If you engage in business in California, you need to determine if your sales into the state surpass the sales or transaction threshold. It’s also a good idea to speak with a trusted tax advisor or someone at the California Department of Tax and Fee Administration to determine your requirements.
A good reference to assist you is Avalara’s state-by-state guide to sales tax nexus rules.
For more details specific to California see the California Department of Tax and Fee Administration Wayfair Decision related-website.
I'm sorry to say that you can't get over your nexus jitters simply by pulling the bed covers up over your head, you need to take proactive action. One of the best ways is to make sure that you have the sales tax experts on your side, so be sure to check out how Avalara can help you overcome the errors and time requirements associated with manual sales and use tax compliance by providing you with sales tax automation, including tax calculation, exemption certificate management, returns processing and 1099 filing and reporting. When you automate your sales and use tax via Avalara, your business will be fully tax compliant without sacrificing productivity and you will eliminate those 'nexus' nightmares.