California new and revised use tax requirements for out-of-state wineries

Both houses of the California legislature quickly passed emergency legislation AB-147, which seeks to modernize the California tax rates post-Wayfair for out of state wineries. The bill, which is expected to be signed this week, will retroactively apply to April 1, 2019 and supersede the recent Revenue and Taxation Code s6203. This new bill will remain in effect for the next two years.

According to the author of the Assembly Bill:

AB 147 establishes a comprehensive set of post-Wayfair use tax collection rules to promote marketplace fairness while balancing the needs of consumers, small businesses, local governments, and the state. It is long past time to bring California’s use tax regime into the 21st century. It is also imperative that we provide meaningful relief to small retailers who, without this legislation, would be forced to register with CDTFA and collect taxes on their minimal sales into California. This bill reflects a thoughtful and balanced approach that seeks to close the use tax gap while recognizing that small businesses play a vital role in the economy.

• Modification of the definition(s) for “marketplace facilitator”, “delivery network company”, “related parties” and “engaged in business”. These changes modify several nexus triggers
• Changes the annual sales threshold to more than $500,000 in sales (in previous or current calendar year)
• Eliminates the 200 sales transactions threshold
• Eliminates district tax economic nexus – any remote seller that surpasses the $500,000 threshold is required by all districts to collect all applicable district use taxes
• Require marketplace facilitators that surpass the $500,000 threshold to register with the department and collect and remit sales tax on behalf of marketplace sellers in California starting October 1, 2019

Wineries outside of California who have a Direct Shipper Permit have always been required to register with CDFTA to collect California state use tax (currently 7.25% with state rate of 6% and mandatory local rate of 1.25%) for all shipments into the state. This is a pre-existing alcohol tax requirement and there are no changes in the registration or reporting obligations for out of state wineries.

For out-of-state wineries that meet the revised nexus thresholds of AB-147, prepare to pay the additional jurisdictional taxes which range from .15% to 3%. Use taxes are due on or before the 15th of the month following the reporting period with the first report due by May 15, 2019.

For out-of-state wineries who have not yet met the threshold in the previous or current calendar year, be sure to review the tax rate you are paying (it should be 7.25% state wide) and track your cumulative DTC sales moving forward.

Note: Wine retailers are allowed to ship into California without a license, and therefore are also not required to register for use tax, unless they are above the $500,000 economic nexus threshold.

Learn more about Avalara's Beverage Alcohol solution here.

For more information on CDTFA nexus:
http://www.cdtfa.ca.gov/industry/wayfair.htm

For general nexus and tax information:
https://www.avalara.com/us/en/blog/2019/04/california-remote-sales-tax-limbo-wacky-tax-wednesday.html
https://www.avalara.com/us/en/learn/nexus.html