California Announces New Use Tax Collection Requirements for

In-State and Out-of-State Retailers

Recent U.S. Supreme Court Decision in South Dakota v. Wayfair, Inc.

Expands Retailers’ Tax Collection Obligations Under California Law

The California Department of Tax and Fee Administration (CDTFA) announced on December 11 that beginning April 1, 2019, out-of-state retailers selling above certain thresholds into California will be required to collect California use taxes on their sales into California. Today’s Special Notices also impact in-state and out-of-state retailers’ obligations to collect and remit district use taxes adopted by California localities.

“Today’s announcement does not increase or create any tax,” said CDTFA Director Nick Maduros. “Rather, California will now require more out-of-state retailers to collect and remit taxes just as brick-and-mortar retailers have done for decades.  With the Supreme Court’s decision in Wayfair, California is able to help level the playing field for California businesses.”

Requirements for Certain Out-of-State Retailers

The new use tax collection requirement is not retroactive and applies only to sales made on and after April 1, 2019. For out-of-state retailers, the new collection requirement applies if, during the preceding or current calendar year, the retailer’s sales for delivery into California exceed $100,000 or the retailer makes sales for delivery into California in 200 or more separate transactions.

Retailers who are already required to be registered to collect California use tax prior to April 1, 2019 will see no change in their registration obligations; retailers with a physical presence in California are still generally required to be registered with the CDTFA.

Although the new requirement to collect California use tax applies only to sales on and after April 1, 2019, retailers may choose to register and collect the tax prior to April 1, 2019. Retailers can register on the CDTFA website at www.cdtfa.ca.gov.

“We know the legislature is also looking closely at this issue and we look forward to working with them as we proceed,” said CDTFA Director Nick Maduros.

Impact on District Tax Collection Requirements for Out-of-State and In-State Retailers

With today’s announcement, certain retailers selling above these thresholds in a single local jurisdiction (district) will also be responsible for collecting that district’s use tax pursuant to Revenue and Taxation Code section 7262 and the Supreme Court’s decision in South Dakota v. Wayfair. This responsibility will apply if, during the preceding or current calendar year, the retailer’s sales into the district exceed $100,000 or the retailer made sales into the district in 200 or more separate transactions.  This requirement will apply equally to in-state and out-of-state retailers.

District taxes are the voter-approved sales and use taxes imposed by cities, counties and other local jurisdictions (districts) added to California’s base sales and use tax rate of 7.25 percent to fund important local services. Currently, retailers located in a taxing district are engaged in business in that district. A retailer is also engaged in business in a district where they have some form of physical presence under existing law.

Beginning April 1, 2019, any retailer whose sales into a district exceed $100,000 or who make sales into a district in 200 or more transactions in the preceding or current calendar year is considered to be engaged in business in that district and is required to collect that district’s use tax on sales made for delivery in that district.

Retailers are required to report and pay any district tax to the CDTFA on their sales and use tax return.

The CDTFA plans to begin the interested parties process for rulemaking next year.

Taxpayer Assistance Available

Taxpayers seeking additional information on registration requirements can find the CDTFA’s online guide Use Tax Collection Requirements Based on Sales into California Due to the Wayfair Decision at www.cdtfa.ca.gov/industry/wayfair. Taxpayers may also contact their local office for assistance.