Update 3.6.2019: AB 147 sailed through today’s Appropriations Committee hearing. Several people praised the bill and no one opposed it.
California is on track to enforce remote sales tax collection starting April 1, 2019, as required by a California Department of Tax and Fee Administration rule. However, state lawmakers are working to amend the rule and impose a collection requirement on marketplace facilitators. If they’re successful, businesses will have a bit more time to adapt to the changes, as the new requirements would take effect October 1, 2019.
Not so long ago, states couldn’t require an out-of-state seller to obtain a sales tax license and comply with sales tax laws unless that seller had a physical presence in the state. That changed on June 21, 2018, when the Supreme Court of the United States overruled the physical presence rule in South Dakota v. Wayfair, Inc.
Although the court didn’t replace the physical presence rule with another bright-line test, it did highlight three aspects of South Dakota’s law that reduce the burden and costs of remote sales tax compliance: the prospective enforcement of the remote sales tax law; the small seller exception; and the fact that South Dakota is a member of the Streamlined Sales and Use Tax Agreement (or SST).
A version of the South Dakota economic nexus law that triggered the demise of the physical presence rule has been adopted by more than 30 states since the Wayfair ruling. All include an exception for small sellers, and most prohibit retroactive enforcement. Some of the states, but not all, are SST members; California is not.
After months of deliberation, the California Department of Taxation and Fee Administration (CDTFA) adopted an economic nexus rule similar to South Dakota’s. Starting April 1, remote businesses with more than $100,000 in taxable sales in California in the current or preceding calendar year, or at least 200 separate transactions for delivery into the state, are required to register with the state and collect and remit the state sales and use tax. Likewise, out-of-state and in-state businesses meeting the economic nexus threshold in California districts where they don’t have a physical presence must collect and remit sales tax in those districts.
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by gail cole
march 4, 2019