California Updates Sales & Use Tax Collection Rules
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The Supreme Court ruling in the case of Wayfair v South Dakota has had a seismic impact on how online and remote retailers are required to charge and collect sales and other taxes. The previous standard that required a company to have a physical presence in a state to be obligated to collect sales tax was effectively made void. With this change states quickly began changing their regulations to require remote sellers with a certain number of transaction or dollar amount of sales to in-state customers to start collecting tax. While actions were quick, the changes were not always consistent between states leaving impacted companies having to navigate through various regulations to determine if they have a tax issue and in which state. Like other states, California has issued updated regulations outlining when remote sellers and online retailers are required to collect and remit sales and use tax to the state. To help clients, prospects and others understand the rules and how to comply with them, JLK Rosenberger has provided a summary of key program details below.
Are You Required to Collect Tax?
Under the new guidelines, retailers located outside the state will be required to collect use tax if their annual sales to in-state customers (in the current or prior calendar year) exceed $100,000 or there are more than 200 separate transactions conducted. The new requirement will apply to taxable sales of tangible personal property made to in-state residents on or after April 1, 2019. While the requirement is not retroactive, companies meeting these criteria are required to register with the California Department of Tax and Fee Administration (CDTFA) and begin collecting tax based on their sales to state customers by the effective date.
What Items are Subject to Tax?
For most business owners the term “tangible personal property” is quite technical and vague about what specific items are subject to the tax. According to the state, generally, all tangible merchandise such as household items, appliances, electronics, clothes, shoes, books, computers, mobile phones, personal items, toys, games, office supplies and tools are subject to tax. It’s important to note that sales tax is not assessed on any service unless it determined the service is part of the sale of tangible personal property.
The state has specifically identified certain items to be exempt from sales, use and other taxes. This includes food products for human consumption, containers used to collect human blood, plasma or blood derivatives and certain prescription medications. They also consider admission charges to theatre and sporting events, finance charges, and the cost of transportation (airline, bus or train tickets) to be exempt from tax collection.
What’s the Impact to Companies with Physical Presence?
The state is careful to point out that the requirements to collect California use tax prior to the Wayfair ruling remain and should continue to be followed. Companies with a physical presence in the state are still required to register with the CDTFA, collect and remit required use tax. Examples of physical presence include maintaining inventory or offices in the state, having representatives to take orders, scheduling deliveries or making installations or leasing equipment including computer servers. There are several resources available to determine tax collection responsibilities for retailers meeting these criteria.
The changes to sales and use tax collection rules for remote sellers are complex and can be difficult to understand. While the state has attempted to make the rules straightforward, it’s best to consult with a qualified advisor who can assess your situation and determine the best course of action. If you have questions about these new regulations or need assistance with a tax planning or compliance issue, JLK Rosenberger can help. For additional information call us at 949-860-9902 or click here to contact us. We look forward to speaking with you soon.