California Sales Tax Nexus
Businesses with nexus in California are required to register with the California State Board of Equalization (BOE) and to charge, collect and remit the appropriate tax.
Generally, a business has nexus in California when it has a physical presence there, such as a retail store, warehouse, inventory, or the regular presence of traveling salespeople or representatives. However, out-of-state sellers can also establish nexus in the ways described below.
California nexus for out-of-state sellers
If your business has ties to businesses in California, including affiliates, it may have nexus under the state’s affiliate nexus provisions.
An out-of-state business is “engaged in business” in California if it is member of a commonly controlled group and combined reporting group in which a member of the commonly controlled performs services in California to help the out-of-state business establish or maintain a California market for sales of products. This includes, but is not limited to, the design and development of tangible personal property sold by the remote retailer, or solicitation of sales of tangible personal property on behalf of the retailer.
Referrals, including online referrals, from in-state entities may also trigger nexus for an out-of-state business. An out-of state seller has nexus in California if all the following conditions are met:
- A retailer enters into an agreement with a person or persons in the state, whereby they, for a commission or other consideration, directly or indirectly refer potential purchasers of tangible personal property to the retailer by an internet link or website, or otherwise
- The total cumulative sales price from all the retailer’s sales to purchasers in California referred by in-state entities is more than $10,000 within the 12 preceding months
- The retailer has total cumulative sales of tangible personal property to purchasers in California within the 12 previous months in excess of $1,000,000
Trade show nexus
California sales and use tax law is specific regarding how trade show and convention activities in the state affect nexus. An out-of-state retailer does not have nexus with California if all of the following are true:
- The retailer’s sole physical presence in this state is to engage in convention and trade show activities as described in Section 513(d)(3)(A) of the Internal Revenue Code
- The retailer, including any of his or her representatives, agents, salespersons, canvassers, independent contractors, or solicitors, does not engage in those convention and trade show activities for more than 15 days, in whole or in part, in this state during any 12-month period
- The retailer did not derive more than $100,000 of net income from those activities in this state during the prior calendar year.
It continues: “Notwithstanding the preceding sentence, a retailer engaging in convention and trade show activities, as described in Section 513(d)(3)(A) of the Internal Revenue Code, is a ‘retailer engaged in business in this state,’ and is liable for collection of the applicable use tax, with respect to any sale of tangible personal property occurring at the convention and trade show activities and with respect to any sale of tangible personal property made pursuant to an order taken at or during those convention and trade show activities.
For additional information, see California Sales and Use Tax Law Chapter 3, Article 1, Section 6203; BOE publication 77, Out-of-State Sellers and appendix; BOE publication 109, Internet Sales, and Regulation 1684, Collection of Use Tax by Retailers.