On April 25, 2019, California passed Assembly Bill No. (AB) 147. AB 147 amended Revenue and Taxation Code (RTC) section 6203 to require retailers located outside of California to register with the California Department of Tax and Fee Administration (CDTFA) and collect California use tax in certain circumstances. Therefore, the CDTFA has made significant changes under AB 147 to out of state sales tax requirements. As a result, these changes impact remote sellers, including foreign sellers that are located outside of the United States. And, these changes impact taxpayers under a CDTFA audit.
All sellers, regardless of location, that meet a threshold of California sales in a year must collect sales or use tax on all sales made in California. During the preceding or current calendar year, if the total combined sales of tangible personal property for delivery in California by the retailer and all persons related to the retailer exceed $500,000, then they have exceeded the threshold. A person is related to a retailer if they have a relationship with the retailer described in section 267(b) of title 26 of the United States Code and the related regulations.
Pre-AB 147: CDTFA Physical Presence and Nexus
Retailers engaged in business in California must register with the California Department of Tax and Fee Administration (CDTFA) and pay the state’s sales tax. This general rule applies to all retail sales of goods and merchandise except those sales specifically exempted by law. On the other hand, the use tax generally applies to the storage, use, or other consumption in California of goods purchased from retailers in transactions not subject to the sales tax. Moreover, use tax may also apply to purchases shipped to a California consumer from another state, including purchases made by mail order, telephone, or Internet.
What does Sales and Use Tax Consist of?
The sales and use tax rate in a specific California location has three parts: the state tax rate, the local tax rate, and any district tax rate that may be in effect.
In general, the requirements to register and collect California use tax prior to AB 147 remain in effect. That is, retailers with a physical presence in California are still generally required to be registered with the CDTFA. Examples of a physical presence in this state include, but are not limited to:
- Maintaining inventory or office locations in California.
- Having representatives in California for purposes of taking orders, making sales or deliveries, or installing or assembling tangible personal property.
- Leasing equipment, including a computer server in California.
AB 147 also amended RTC section 7262 to require all retailers, whether located inside or outside of California, to collect district use tax on all sales made for delivery in any district that imposes a district tax if, during the preceding or current calendar year, the total combined sales of tangible personal property in California or for delivery in California by the retailer and all persons related to the retailer exceed $500,000. This new collection requirement is operative April 25, 2019 (see Special Notice L-684).
CDTFA Sales Tax: Remote Sellers After Wayfair
The new use tax collection requirement for remote sellers will apply to taxable sales of tangible personal property to California consumers on and after April 1, 2019, and is not otherwise retroactive. Retailers that exceed the $500,000 sales threshold in the preceding or current calendar year are now required to register with the CDTFA to collect the California use tax even if they were not previously required to register. These retailers include retailers that sell tangible goods for delivery into California through the Internet, mail-order catalogs, telephone, or any other means.
CDTFA Sales Tax: Consignment Sales
An exception to the general rule exists when a fulfillment center enters into an agreement to fulfill sales on behalf of the owner of the goods. In this case, the transaction may be considered a consignment sale and the fulfillment center may be responsible for reporting and paying tax. A consignee is a person who has:
- Possession or control of the goods owned by another person, and
- The power to transfer ownership to the buyer without further action on the part of the owner.
If both of those elements are met, the fulfillment center is the consignee and the owner of the goods is the consignor. As a consignee, the fulfillment center is considered to be the retailer of the goods sold on consignment. Consequently, the consignee is required to obtain a California seller’s permit or register with the CDTFA to report and pay the applicable tax to the CDTFA on these sales.
You, as the fulfillment center, may issue form CDTFA-230, General Resale Certificate, to the owner when receiving the goods you sell on consignment in your regular course of business operations, modifying the language used in the certificate from referring to the “purchased” goods to the goods “taken on consignment.”
Do you have a Question about CDTFA changes applicable to Out of State Sellers?
The CDTFA made significant changes pursuant to AB 147 that affect sales tax requirements for out of state sellers. Contact a tax attorney at Disparte Tax Law today for a free consultation.