New Taxing Authority Exercised on Online Sales
The California Department of Tax and Fee Administration (CDTFA) recently issued a new ruling, effective April 1, 2019, that will require out-of-state retailers selling above certain thresholds to collect use taxes, or sales tax based on where a good is used, including locally levied use taxes. Currently, consumers are responsible for paying the use tax on merchandise from out-of-state retailers. Under the new ruling, CDTFA is shifting the responsibility for remitting the use tax from the consumer to the retailer, consistent with the authority granted in the South Dakota v. Wayfair, Inc. U.S. Supreme Court decision.
In South Dakota v. Wayfair, Inc., the Court overturned a legal precedent that allowed states, for over 50 years, to require retailers to collect sales and use taxes from their customers, but only if the retailer has a physical presence in the state where the item is being purchased. The Wayfair ruling eliminates the physical presence standard and states are able to require all retailers, regardless of their footprint in the state, to collect sales and use taxes.
CDTFA is implementing the Wayfair decision prospectively, with new collection requirements to sales made on and after April 1, 2019. This delay allows more time for out-of-state retailers to register with the Department to collect California use tax. All retailers will be subject to the new requirement if during the preceding or current calendar year, the retailer’s sales for delivery into California exceed $100,000 or the retailer makes sales for delivery into California in 200 or more separate transactions.
The requirements equally apply to district taxes (voter-approved sales and use taxes imposed by local governments that are added to the state’s 7.25 percent base rate). Any retailer, whether in-state or out-of-state, whose sales into a district exceed $100,000 or who make 200 or more sales transactions in a district will be required to collect that district’s use tax.