As of today, California is requiring out-of-state sellers to start collecting sales tax from California buyers, joining numerous other states with such laws.
California allows an exception for small sellers: Out-of-state sellers must have more than $100,000 in taxable sales in California or at least 200 retail sales for delivery in the state in the current or preceding calendar year before a tax collection obligation kicks in, according to CPAPracticeAdvisor.com.
Sellers must also track sales by district. The tax site explains, “Both out-of-state sellers and in-state sellers must also collect additional sales and use taxes (i.e., applicable county, local, and district taxes) if/when they surpass the economic nexus threshold ($100,000 sales/200 transactions) in a district.”
In addition, California wants sellers who use Amazon’s FBA fulfillment program to pay sales tax retroactively. However, in an unusual move, California State Treasurer Fiona Ma disagrees with that practice.
TaxJar explained that California had sent letters to Amazon FBA sellers saying that because they had products in Amazon’s warehouses and fulfillment centers, they must now pay sales tax. “The CDTFA claims these small business owners should potentially pay up to eight years of back taxes, plus penalties and interest, and are demanding they become compliant with California sales tax laws.”
But, TaxJar continued, Treasurer Ma strongly disagreed, since sellers have no control over where their inventory winds up via Amazon. In a letter to Governor Gavin Newsom, Ma called on him to end California’s pursuit of retroactive and future sales taxes from remote Amazon sellers who have economic nexus due to warehouse inventory.
In the meantime, sellers are left to figure things out themselves. TaxJar, which recommends sellers comply with such laws, notes that, “For online sellers, the amount of conflicting information can be mind-boggling.”
Internet Retailer compiled a chart showing 36 states with sales tax laws showing the sales-tax collection start date and minimum sales thresholds. Two of those on the list – Nevada and DC – have proposed sales tax, and Tennessee’s status shows “pending further legislation.”
Some states are requiring marketplaces to collect sales tax from buyers in their states, lifting some of the burden from sellers, but for now, it’s just one more complication for multi-channel sellers.