How Do Online and Out-of-State Sellers Comply with California’s Sales Tax Provisions?

California is one of the states where businesses dealing in tangible goods are obliged to gather and submit sales tax on transactions concerning the taxable event that takes place in the state. 

These provisions are enforced by the tax and fee administration in California (CDTFA) since the 2018 South Dakota v. States the option of requiring out-of-state sellers on the basis of economic nexus to pay tax, regardless of their physical presence in the state, like in the Wayfair decision.

What Is an Economic Nexus, and How Does It Affect Remote Sellers?

Economic nexus is that sales volume or transaction number of a business in California is able to impose a tax liability. Experienced IRS tax experts, including ( former IRS tax agent, a former auditor, and experienced sales tax attorneys) can help the remote sellers. 

The California law states that a remote seller will have an economic nexus in the event that they make above $500,000 in sales of tangible personal property in California in the past or present calendar year. When this threshold is achieved, a seller should be registered with the CDTFA, collect tax on the sales made to customers in California, and submit the tax as well.

Do Marketplace Facilitators Also Need to Collect Sales Tax?

Yes. The Californian legislation governs that marketplace facilitators (Amazon, Etsy, or eBay) have to collect and remit sales tax on behalf of third-party sellers who utilize their services. This also takes off the burden of small sellers who would be required to manage sales taxes on sales made on such platforms. 

Nevertheless, there are still accurate sales records that should be maintained by the sellers, and they have to report such sales to reflect in their total revenue so that tax is charged appropriately.

How Should Out-of-State Sellers Register and File for Sales Tax in California?

The out-of-state sellers with a threshold of economic nexus are required to be registered by the CDTFA using its online registration facilities. After registration, the sellers must:

• Impose sales tax following the rate of tax that is based on the destination (the rate of tax to be paid at the point of the buyer).
• File periodic (monthly, quarterly, or annually, depending on volume of sales) sales tax returns.
• Keep records of the transactions to record the taxable and the exempt sales.

The inability to cross the threshold when registering or remitting taxes can lead to penalties and payment of interest.

What Is the Difference Between Sales Tax and Use Tax in This Context?

Whereas the state imposes the sales tax on the sellers who have made the taxable sales in the state, the use tax is imposed on the purchase of goods sold by the out-of-state salesmen who do not collect California sales tax. 

When this happens, the buyer, either a business or a person, is the one to pay and report the use tax to the CDTFA. Experienced IRS tax experts, including ( former IRS tax agent, a former auditor, and experienced California tax attorneys) can help in dealing with CDTFA taxes. 

To remote sellers, it implies that when they develop nexus, they will be required to collect sales tax on sales to California buyers, so that they will not be required to self-report on use tax.

With the help of professional tax advice and of automated services, sellers are able to easily cope with the complicated tax system in California, neither paying much in fines, and ensuring that respect is not lost by their clients, as well as by regulators.

Disclaimer

The information provided in this article is for general informational and educational purposes only and does not constitute legal, financial, or tax advice. While efforts have been made to ensure accuracy and reliability, tax laws and regulations in California — including those administered by the California Department of Tax and Fee Administration (CDTFA) — are subject to change and interpretation.

Readers should not act or rely solely on the information herein without seeking professional guidance from qualified tax professionals, such as certified public accountants, tax attorneys, or former IRS agents. The author and publisher assume no responsibility or liability for any errors, omissions, or outcomes resulting from the use of this information.

For official and up-to-date guidance, please consult the California Department of Tax and Fee Administration (CDTFA) or a licensed tax expert.