The California Department of Tax and Fee Administration is joining a handful of other states by requiring online retailers to collect sales tax — even if they’re physically based in a different state. Abajian Law is breaking down some of these requirements to make sure you’re in compliance with California tax law, no matter where you’re located.
If you’re an online retailer who’s doing business with California customers, starting April 1st 2019 you’ll need to collect sales tax no matter where your business is located. That change is due to a decision made by the California Department of Tax and Fee Administration (CDTFA) to bring the state in line with similar determinations made by more than half of America’s other states.
The idea is simple: if your online business does more than $100,000 in gross sales and 200 or more transactions each year, you need to collect California use taxes. Previously, if your online store or business was physically located in another state, there was no requirement to collect taxes on sales made to California customers. This stands in contrast to brick-and-mortar laws, which have required CA use tax collection for years and years.
Ultimately, the CDTFA wants retailers to look at this as an update or consolidation of tax law rather than a new tax or a tax increase. Of course, it stands to reason that out-of-state e-tailers may not love this change, as it increases shopping cart prices and may mildly suppress sales due to a perceived increase from the California buyer’s perspective. However, from the state’s perspective, this a much-needed closing of a loophole that was leaking a massive source of potential tax revenue for California: a state that, itself, is the world’s 5th largest economy.