California is one of many states that imposed economic nexus on remote sellers as a result of the U.S. Supreme Court’s 2018 decision in Wayfair. California issued guidance in December 2018 requiring remote sellers with $100,000 in California sales or 200 transactions in California to collect the state use tax. This remote seller collection requirement became effective April 1, 2019.
More recent legislation passed on April 25, 2019 to protect small businesses from the related burden (and cost) of tax administration. The new law raises the sales threshold to $500,000 and eliminates the transaction count.
The new law also requires all retailers to collect the district tax if the retailer has sales exceeding the $500,000 threshold. California’s December 2018 guidance stated that only retailers with a physical presence or $100,000/200 transactions in a district were required to collect district taxes.
The revised law is a reprieve for many remote sellers with activity in California. Remote sellers that registered with the California Department of Tax and Fee Administration (CDTFA) to collect, but that do not meet the new threshold of $500,000 have the option of cancelling their account by contacting the CDTFA. Any tax collected by a registered remote seller prior to cancellation must be remitted to California.
Please contact Schneider Downs’ State and Local Tax advisory team if you have any questions concerning the impact of California’s remote seller law on your business.