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How to Collect Online Sales Tax in California

  • Mar 25, 2014 | Will Frei

Starting an online business can be exciting, but knowing how and when to collect sales tax can be hard. We put together this quick guide to get you started.

Do I have to collect online sales tax in California?

The answer is yes if you have established nexus in the state of California, but what is nexus? A simple definition of nexus is a connection, or presence within the state.

So, for example let's say that you are based in New York and sell watches online, using Amazon to fulfill your orders. When you send your watches to Amazon, you have established nexus everywhere Amazon stores your inventory. Because of that connection, you are required to collect sales tax on each sale you make in a state where Amazon stores your inventory.

What sales tax rate do I use?

If you are making interstate sales, then use the sales tax rate from the buyer's location (in this case, California). Finding the right rates for sales that take place within California's borders is complicated because of California's district tax laws.

When you make an intrastate sale, you use the local and district sales tax rates from your location, with one exception. When you sell to someone in a different district, you use the district tax rate from their location if you have nexus in their district (if you don't have nexus there, then you don't collect district tax). Nexus means you have some physical connection to the district, such as making deliveries there or having a warehouse there.

This table shows your three possible sales tax scenarios based on the above information.

Aside for FBA Sellers: because of the above, Amazon Sellers MUST know where their goods are shipping from in order to determine the correct rate.

Recap video

If you're head is swimming at this point, don't despair! Take two minutes and watch our California sales tax video primer.

What do I do once I collect?

Keeping track of how much sales tax you collect from customers is a critical step in the process. Because sales tax is collected at the point of transaction, you need to have a good way to keep track of how much you have collected. Develop a good way to manage and store these records until it is time to file a sales tax return.

How do I file a sales tax return in California?

There are two ways to file your sales tax return in California, mail one in or file online.

In the state of California, your filing frequency is based on your projected revenue for the year:

  • $0 - $100 per month = Annual
  • $101 - $1,200 per month = Quarterly
  • $1,201 - $9,999 per month = Monthly
  • $10,000+ per month = Monthly with EFT

Filing late can come with harsh penalties and interest. According to the California Board of Equalization, a 10% penalty applies to taxes paid after the quarterly filing due date. This penalty also includes any prepayments that were made after the quarterly due date. If you have made any prepayments for the current reporting period and are late on your quarterly payment, the 10% is based on your total tax amount due minus any payments.

The best thing to do is to stay ahead of the filing schedule and know exactly how much you need to file and to which tax authorities.

Hopefully this guide helps you understand what you need to do to stay on top of sales tax. Avalara TrustFile offers a simple solution.

Boston Public Library via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Will Frei
Avalara Author Will Frei
Will Frei covers sales tax news including best practices, legislation and sales tax technology. He is the Social Media Manager at Avalara.