PILLA TALKS TAXES - Featured Article
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CALIFORNIA REACTS TO WAYFAIR

ESTABLISHES NEW USE TAX COLLECTION REQUIREMENTS FOR REMOTE SELLERS

by Daniel J Pilla  

California Governor Gavin Newsom recently signed a law that reacts to the Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080. That decision dismantled the long-standing “physical presence” test for determining whether the various states had the right to assess and collect sales taxes against a remote retailer—that is, a seller with no presence in the state seeking to assess the tax. The physical presence test required a seller to have an actual presence of some kind within the state, such as sales people, a warehouse, a phone center, a show floor, etc., before that state could impose sales taxes. 

The Supreme Court trashed the physical presence test in favor of what is called the “nexus” test. The nexus test suggests that any connection between the seller and the state can trip liability for the tax. The flood gates have opened as states around the nation are passing laws to impose taxes on remote sellers. This is so important that I include a chapter in my new book, Dan Pilla’s Small Business Tax Guide, to address this issue. My chapter on Wayfair-related state sales tax laws details four different ways that the various states are claiming “nexus,” and thus imposing taxes on remote sellers. 

California’s law requires out-of-state retailers with no physical presence in California to collect use tax if, during 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 $500,000. The law also requires all retailers, whether located inside or outside of California, to collect and pay the district use tax on all sales made for delivery in any district that imposes a district tax. This requirement attaches if, during the preceding or current calendar year, the total combined sales of tangible personal property in California, or for delivery in California by the retailer and all persons related to the retailer, exceed $500,000. 

In other words, any retailer whose total sales of tangible personal property in California, including sales for resale, exceed the $500,000 threshold is considered “engaged in business” in every district in California that imposes a district tax. As such, the retailer is now required to collect the district use tax on taxable sales made for delivery in every taxing district, regardless of the amount of the retailer’s sales to any individual district. 

This requirement was effective as of April 1, 2019. The new district use tax collection requirement was effective as of April 25, 2019. For more information, California has a link on its website explaining the law. See the “Special Notice, New Use Tax Collection Requirements for Remote Sellers and New District Use Tax Collection Requirements for All Retailers,” at:

www.cdtfa.ca.gov/formspubs/l632.pdf 

A second guide entitled, “Use Tax Collection Requirements Based on Sales into California Due to the Wayfair Decision,” is available at: www.cdtfa.ca.gov/industry/wayfair.htm. 

This is just one more reason everyone in business needs my new book, Dan Pilla’s Small Business Tax Guide. 

This is  an article from the August 2019 issue of Pilla Talks Taxes Newsletter. Subscribers to Pilla Talks Taxes are able to read complete articles as well as the rest of the newsletter when they log into their subscription account on their non mobile device. http://taxhelponline.com/subscriber-login.html