California Announces Intent to Tax eCommerce

Charles Maniace
December 12, 2018

In a news release published on December 11, the California Department of Tax and Fee Administration formally announced their intent to join 30+ other U.S. states in the taxation of remote commerce. While formal rules have yet to be issued, California has been contemplating action since the Supreme Court issued their ruling in South Dakota v. Wayfair on June 21, 2018, and conducted a public hearing on the matter back on October 24.

What we know today:

  1. The requirement will take effect on April 1, 2019.
  2. California will impose this requirement on businesses with more than $100,000 of sales into California or who engage in 200+ separate transactions with California customers. This standard is identical to what is being enacted in most states. However, it’s worth noting that California is the largest U.S. state by population, consequently, its likely that many more sellers will meet these California thresholds and will meet them relatively quickly.
  3. Like most other states, the rule will only apply to prospective transactions and not retroactively.
  4. Remote sellers will be required to collect state tax as well as the statewide county tax and local tax (for a total combined rate of 7.25%). Additionally, remote sellers will also be required to collect district tax, the amount of which varies by location, in some instances. As the law stands today for sellers with physical presence, the requirement to collect district tax is determined on a district by district basis. Based on the Notice, California plans on requiring the same of remote sellers. That is, the obligation to collect district tax will likewise be determined on a District by District basis based upon whether the seller exceeds the $100,000 in sales/200 transactions threshold for that specific district.
  5. The requirement to independently determine economic nexus on a local basis is unique to California and will undoubtedly present challenges to sellers. Other states faced with similar local challenges have opted for rules which apply a specialized rate for remote sellers (e.g. Alabama and Louisiana) or have enacted a requirement indicating that meeting the thresholds at the state level also requires local collection (e.g. Colorado). California plans to issue clarifying rules in 2019 and we suspect that those rules will address this District taxation requirement in some detail.

    Today, California provides an open Application Program Interface (API) and other tools that provide taxpayers with assistance in knowing the particular state and local rates that apply to a given address. While certainly helpful, adopting these tools will not address challenges associated with determining correct product taxability and does not necessarily provide a path forward towards comprehensively addressing economic nexus requirements on a nationwide basis.

    Of course, action by the California legislature could change things significantly. The possibility exists that when the legislature reconvenes in the new year they could enact a law which, while still requiring remote sellers to collect, applies a higher sales and/or transactional threshold. It will also be interesting to see whether, through legislation, California follows the lead of states like Washington and Pennsylvania in requiring marketplace sellers to collect on behalf of their clients.

    California was one of a handful of states that had yet to formally announce their plans to tax remote commerce. As we move into the new year, it will be interesting to see how requirements in the remaining states, including Arizona, New York, and Florida, evolve.

    Take Action

    Be a sales tax hero by safeguarding your business with the world’s most complete sales & use tax filing solution. Request a Sovos Sales and Use Tax Filing demo today and solve sales tax filing for good.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Charles Maniace

Charles Maniace is Vice President – Regulatory Analysis & Design at Sovos, a leading global provider of software that safeguards businesses from the burden and risk of modern tax. An attorney by trade, Chuck leads a team of attorneys and tax professionals responsible for all the tax and regulatory content that keeps Sovos customers continually compliant. Over his 15 year career in tax and regulatory automation, he has provided analysis to the Wall Street Journal, NBC and more.
Share This Post
Share on facebook
Share on twitter
Share on linkedin
Share on email

North America ShipCompliant
July 29, 2021
What are the DtC Wine Shipping Laws By State?

Most states allow direct-to-consumer (DtC) wine shipping. However, you must follow the rules of the destination state when doing it. States can have varying requirements and limitations when it comes to licensing, product restrictions, dry communities or even volume limits for how much a given customer can receive. For example, Massachusetts restricts licensees from shipping […]

E-Invoicing Compliance EMEA VAT & Fiscal Reporting
July 29, 2021
VAT Trends of the Gulf Cooperation Council

More than 170 countries throughout the world have implemented a VAT system, and some of the most recent adopters are the Gulf countries. In a bid to diversify economic resources, the Gulf countries have spent the past decade investigating other ways to finance its public services. As a result, in 2016 the GCC (Gulf Cooperation […]

North America Sales & Use Tax
July 28, 2021
What the New E-988 Surcharge Means for Tax Compliance

In sales tax, ideas spread fast. In the new E-988 surcharge, we may be seeing the very beginning stages of what ultimately might become a new and expansive tax compliance requirement for sellers of prepaid wireless products and services. It all started in July 2020 when the Federal Communication Commission (FCC) adopted regulations designating the […]

North America Sales & Use Tax
July 27, 2021
4 Retail Trends and Their Sales Tax Implications

Over the past few years, I have had the unique privilege of working with many organizations to understand their business complexities as they expand and grow their company. Sales tax happens to go hand in hand with the journey of growth and expansion in virtually every market.  When creating a brand it’s crucial to have […]

EMEA IPT
July 27, 2021
The Five Pillars of IPT Compliance

For anyone relatively new or unfamiliar with insurance premium tax (IPT), an understanding of each of the core components is key to ensuring compliance. They also sit in a logical sequence of five distinct areas. Location of risk Class of business Applicable taxes and tax rates Declaration and payment Additional reporting  1.Location of risk rules […]