The California Department of Tax and Fee Administration (“CDTFA”) will implement new use tax collection requirements for both in-state and out-of-state retailers, effective April 1st, 2019. Particularly, out-of-state retailers selling above certain thresholds into California will be subject to use tax collection for their sales into California. The new collection requirements are a result of the U.S. Supreme Court decision in South Dakota v. Wayfair Inc, U.S. S.Ct., Dkt.No.17-494,(06/21/2018).
REQUIREMENTS FOR OUT-OF-STATE RETAILERS
For out-of-state retailers, the new collection requirement only applies if the retailer’s sales for delivery into California exceed $100,000 during the preceding or current calendar year, or if the retailer has sales which result in delivery into California in 200 or more individual transactions. The new use tax collection requirement is not retroactive (i.e. not applicable to sales prior to 4/1/2019), however, retailers have the option to register and collect the tax prior to April 1st, 2019.
A retailer reaching either of the Wayfair sales thresholds is “doing business” for sales and use tax purposes in California, and thus CDTFA registration requirements would apply. Registering with the CDTFA will require a retailer to collect and remit the use tax from California customers. Note that for state sales / use tax purposes, the new Wayfair-type nexus thresholds are applied where a taxpayer has no other evidence of physical presence in the state. For taxpayers with a presence in California (e.g. employees, inventory, equipment), the standard physical presence nexus rules still apply.
DISTRICT USE TAX COLLECTION REQUIREMENTS
A retailer that conducts business (“engaged in business”) in a district is typically required to collect district use tax and remit it to the CDTFA on sales of tangible personal property delivered into the district. Currently, a taxpayer is considered “engaged in business” for district tax purposes if it (a) has a representative or agent operating in the district, (b) receives rentals from a lease of tangible personal property located in the district, or (c) sells or leases vehicles or vessels that are registered in the district. Taxpayers should be aware that these traditional “doing business” (nexus) thresholds for the district tax will still apply after April 1, 2019. The new $100,000 gross sales / 200 separate transactions thresholds (these are applied to totals within the District) are applied in addition to the existing “doing business” (nexus) thresholds. Thus, taxpayers must be aware that even though they may not meet the new Wayfair-type thresholds, they may still have a collection and filing responsibility due to having sufficient activity within a district under traditional nexus standards (e.g. inventory, employees, equipment).
This is similar to the analysis taxpayers must perform on a multistate basis for the new Wayfair-type thresholds imposed by the various states: remaining under the new sales or transactions thresholds will not shield taxpayers from a sales / use tax collection and filing responsibility where the same taxpayers have established some form of physical presence in the district.
QUESTIONS? Please contact our SALT group for additional guidance on how the new use tax collection requirements changes may affect your business.
References: California Department of Tax and Fee Administration – Special Notice Bulletin December 2018 South Dakota v. Wayfair Inc, U.S. S.Ct.,Dkt. No. 17-494, 06/21/2018.
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