California Changes Nexus for Sales Tax Threshold

Effective April 1 2019 the state legislature of California enacted economic nexus for sales tax with a threshold set at $100,000, however, effective immediately, the state has changed this provision by increasing the threshold to $500,000. This change impacts any business which sells products or services within or to individuals or business into the state of California. It does include online sales.

If you registered under the $100,000 threshold (and don’t exceed the new $500,000 threshold), you can choose to either maintain your account or cancel it if you no longer meet the economic nexus thresholds within the state. Please keep in mind that if you do not meet the new $500,000 threshold and choose to maintain your account with the state of California you may still have filing requirements.

The California Legislature recently passed Assembly Bill No. (AB) 147 which requires:

Retailers located outside of California (remote sellers) to register with the California Department of Tax and Fee Administration (CDTFA) and collect California use tax if, in the preceding or current calendar year, the total combined sales of tangible personal property for delivery in California by the retailer and all persons related to the retailer exceed or exceeded $500,000; and

All retailers required to be registered with the CDTFA, whether located inside or outside of California, to collect and remit district use tax to the CDTFA on all sales made for delivery in any district that imposes a district tax if, in the preceding or current calendar year, the total combined sales of tangible personal property in this state or for delivery in this state by the retailer and all persons related to the retailer exceeds or exceeded $500,000.

The new collection requirements are operative as of April 1, 2019, and supersede our previous direction regarding 1) the use tax collection requirements for out-of-state retailers (see Special Notice L-5652), and 2) the district use tax collection requirements for all retailers, including retailers located inside or outside California (see Special Notice L-5913).

If you are a remote seller who previously registered with the CDTFA to collect California use tax due to the state's prior direction (see Special Notice L-565), and you do not meet the new $500,000 sales threshold pursuant to AB 147, nor do you have any contacts with California that would qualify you as a retailer engaged in business there, you may either close your account or continue to collect the use tax as a courtesy to your California customers.

To close your account, please contact the California legislature's Customer Service Center at 1-800-400-7115. Please be advised, any use tax collected by you from your California customers must be reported and paid to the CDTFA. Additional registration and fee collection requirements for sales of certain items may apply.

Please note: If you sell 1) new tires or vehicles and equipment that include new tires, 2) covered electronic devices, 3) lead-acid batteries, or 4) lumber or engineered wood products, you may have additional registration and fee collection requirements.

If you have questions, please contact HBK Tax Advisory Group member Cassandra Baubie, JD, at CBaubie@hbkcpa.com.

About the Author(s)
Cassandra Baubie is an Associate at HBK CPAs & Consultants and is a member of its Tax Advisory Group (TAG). Cassandra joined HBK in 2017. She works in the firm’s Youngstown, Ohio office. She has experience in tax law research and writing. Prior to joining HBK, she worked for Jurist.org, a global legal news organization, and was a member of the University of Pittsburgh Tax Law Review Journal. Cassandra also worked for the University of Pittsburgh School of Law’s Low-Income Tax Clinic where she performed IRS litigation and Tax Court work and provided compliance work for low income individuals and businesses. Cassandra focuses on issues pertaining to State and Local Taxation (SALT), as well as flow through entity taxation. She has been involved in numerous sales and use tax, franchise tax, and corporate income tax audits, VDA’s, and refund requests. She focuses on complex sales and use tax compliance planning, nexus studies and on-site review and training for all SALT related issues, and has managed various engagements as the in-charge team member and has significant experience in multi-state tax issues.
Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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