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The Trickiest California Sales Tax Rule

  • Dec 9, 2015 | Suzanne Kearns

Think you’ve got sales tax troubles in your state? Those issues might seem like a breeze once you’ve heard about a particularly tricky California sales tax rule. The rule has to do with modified origin sales tax.

Modified What?

Most states keep sales tax collection pretty simple for sellers by either declaring themselves an origin-based state or a destination-based state. In an origin-based state, sellers collect sales tax based on where they are, and in a destination-based state, tax is determined by where the buyer is located.

But in California, sales tax is a mixture of the two. Hence the term modified origin sales tax.

How Does it Work?

If you’re an ecommerce seller who has nexus in California, sales tax will be the district rate for those buyers in your district (California has districts, which are made up by local jurisdictions), plus the state rate. And for buyers outside of your district, you’ll only charge the CA sales tax rate. Some areas have more than one district tax. To simplify matters, you can look up a street address to determine which district taxes apply.

The tricky part comes when your business has more than one location in the state. In that case, you’ll have to charge buyers the district rate according to the location at which they made their purchase. And if you use Amazon FBA, you'll have to calculate the district rate for each of the warehouse locations.

What if you don’t have nexus in the state? According to the California State Board of Equalization (BOE), if you have no location or inventory in the state, you should charge both state and local sales tax according to where the product is delivered.

Finally, keep in mind that the CA Board of Equalization requires sellers to keep their records for four years in case you need to verify you’ve properly paid the CA sales tax.

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
Suzanne Kearns
Avalara Author Suzanne Kearns