California to Impose Sales and Use Tax on Out-of-State Internet Sales Following Landmark Supreme Court Decision

  • United States
  • 12/14/2018
  • Duane Morris

As a result of the recent U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. that expanded the powers of states to impose their sales and use tax jurisdiction over internet and other remote sellers of goods, the California Department of Tax and Fee Administration has just issued a news release that will impact thousands of web-based, catalog and other retailers that sell goods for delivery to California. This policy expands the reach of the California sales/use tax to these retailers, making them subject to California tax jurisdiction on their sales—if they meet certain minimum sales activity.

Starting April 1, 2019, retailers outside of California not currently collecting California sales/use tax on their sales to California residents or businesses will be required to collect and remit California sales/use tax on such sales, if, during the preceding or current calendar year:

The retailer’s sales for delivery into California exceed $100,000; or
The retailer makes sales for delivery into California in 200 or more separate transactions.
As a result, retailers with no physical presence in California (e.g., office, employees, representatives, property, etc.) will now be required to register with the state and collect and remit sales/use tax to California if they meet the above minimum thresholds.

This new tax collection requirement will not be retroactive but will apply only to sales made on and after April 1, 2019.

As reported in our previous Alert, the Supreme Court decision will likely affect the revenues of not only large internet retailers, but also small- to medium-sized online retailers. Announcements similar to California’s should be anticipated from other states, and businesses should plan for how this expansion of state tax law jurisdiction will affect their future sales.