California changes sales tax economic nexus threshold, taxes marketplace providers
Update 7.15.2019: Due to the enactment of Senate Bill 92 in late June, the district tax ordinance is effective April 25, 2019, rather than April 1, 2019. The California Department of Tax and Fee Administration (CDTFA) explains that the date change "eliminates the retroactive effect of AB 147 with regard to the new district use tax collection requirement." See the CDTFA for more details.
New sales and use tax collection requirements took affect for both in-state and out-of-state sellers in California on April 1, 2019. Now they’ve changed.
The original requirements, put in place by the California Department of Tax and Fee Administration (CDTFA), largely mimicked the economic nexus law adopted by South Dakota; they required an out-of-state business with more than $100,000 in sales or at least 200 transactions in the state in the current or previous calendar year to collect and remit sales tax. The CDTFA also created district-level economic nexus rules for in-state businesses.
Newly enacted California Assembly Bill 147 increases the economic nexus threshold. It also simplifies the requirements for in-state businesses and imposes a sales tax collection obligation on marketplace facilitators.
Higher economic nexus threshold
AB 147 retroactively increases the sales threshold from $100,000 to $500,000 and eliminates the transactions threshold.
Thus, as of April 1, 2019, an out-of-state retailer must register with the CDTFA and collect and remit California sales and use tax if, in the preceding or current calendar year, the retailer “and all persons related to the retailer” have more than $500,000 in total combined sales of tangible personal property for delivery in California.
Simpler requirements for in-state sellers
Prior to the enactment of AB 147, the CDTFA required in-state businesses meeting the $100,000 sales/200 transactions threshold in a district to collect that district’s sales/use tax in addition to the state tax. Before the CDTFA adopted this rule, California businesses had only collected the sales tax they had in common with the consumer.
AB 147 removes the need for in-state sellers to tally their sales in each district, effective April 1, 2019. Like out-of-state sellers, in-state sellers now need only monitor their total sales in the state; once their California sales of tangible personal property exceed the $500,000 threshold, they’re required to collect the California district sales/use taxes in effect where the purchaser takes possession of the property, as well as the statewide sales/use tax (i.e., the combined or total tax rate).
New sales and use tax collection requirement for marketplace facilitators
The new law also creates a new sales tax collection obligation for marketplace facilitators or providers.
Starting October 1, 2019, all in-state marketplace facilitators and out-of-state facilitators that meet the $500,000 threshold must collect the tax due on all sales made in the state through the marketplace. As of October 1, 2019, therefore, individual marketplace sellers generally won’t be liable for the tax on those sales.
To determine whether the $500,000 threshold has been met, a marketplace facilitator should tally all sales made through the marketplace in California — those made on its own behalf, by all related persons, and by its marketplace sellers.
AB 147 defines “marketplace” as a physical or electronic place, including but not limited to a store, booth, internet website, catalog, television or radio broadcast, or a dedicated sales software application, where a marketplace seller sells or offers for sale tangible personal property for sale in California.
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