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Nexus & Overview - California

State Sales Tax Nexus Requirements and General Overview

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California (CA)

CA Sales Tax - Name and General Application of Tax:

California sales tax is imposed on every retailer for the privilege of making retail sales of tangible personal property in the state. California use tax is imposed on the purchase of tangible personal property from any retailer for storage, use, or consumption in California.

CA Nexus - General Requirements:

Whether an obligation to collect California use tax attaches to a sale by an out-of-seller is determined by a combination of federal and state restrictions. At the federal level, the determination revolves around whether a nexus between the sale and California can be established. If there is sufficient nexus, it then must be determined whether the seller qualifies as a "retailer engaged in business" in the state.

Before a state can tax out-of-state activities, it must be able to show a connection or "nexus" that the activities have with the state. Nexus is a federal issue and is governed in the first instance by the U.S. Constitution.

California imposes click-through and affiliate nexus.

The definition of "retailer engaged in business in this state" includes any retailer who enters into an agreement under which a person in California, for a commission or other consideration, directly or indirectly refers potential purchasers of tangible personal property to the retailer, whether by an Internet-based link, a website, or otherwise, provided two conditions are met. Those conditions are: (1) that the total cumulative sales price from all of the retailer's sales within the preceding 12 months of tangible personal property to purchasers in California that are referred pursuant to such an agreement is in excess of $10,000; and (2) the retailer has total cumulative sales of tangible personal property to California purchasers in excess of $1 million within the preceding 12 months.

In addition, the term "retailer" includes an entity affiliated with a retailer within the meaning of IRC §1504.

These provisions are inapplicable if the retailer can demonstrate that the person in California with whom the retailer has an agreement did not engage in referrals in the state on behalf of the retailer that would satisfy the requirements of the Commerce Clause of the U.S. Constitution.

The term "retailer engaged in business in this state" also includes any retailer that is a member of a commonly controlled group and a combined reporting group, both as defined, that includes another member of the retailer’s commonly controlled group that, pursuant to an agreement with or in cooperation with the retailer, performs services in California in connection with tangible personal property to be sold by the retailer, including but not limited to the design and development of tangible personal property sold by the retailer, or the solicitation of sales of tangible personal property on behalf of the retailer.

In addition, the definition of a "retailer engaged in business" in California includes a retailer that has substantial nexus with California for purposes of the Commerce Clause of the U.S. Constitution and any retailer upon whom federal law permits the state to impose a use tax collection duty.

Every retailer engaged in business in California and making sales of tangible personal property for storage, use, or other consumption in California, not otherwise exempted, must collect sales or use tax from the purchaser. "Retailer engaged in business in this state" specifically includes but is not limited to any retailer who:

  • maintains, occupies, or uses, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place, or other place of business;
  • has any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property;
  • as respects a lease, derives rentals from a lease of tangible personal property situated in California;
  • is a member of a commonly controlled group and a combined reporting group, as defined, that includes another member of the retailer’s commonly controlled group that, pursuant to an agreement with or in cooperation with the retailer, performs services in this state in connection with tangible personal property to be sold by the retailer, including but not limited to the design and development of tangible personal property sold by the retailer, or the solicitation of sales of tangible personal property on behalf of the retailer; and
  • enters into an agreement or agreements under which a person or persons in California, for a commission or other consideration, directly or indirectly refers potential purchasers of tangible personal property to the retailer, whether by an Internet-based link or an Internet website, or otherwise, provided that both of the following conditions are met: (1) the total cumulative sales price from all of the retailer’s sales, within the preceding 12 months, of tangible personal property to purchasers in this state that are referred pursuant to all of those agreements with a person or persons in this state, is in excess of $10,000, and (2) the retailer, within the preceding 12 months, has total cumulative sales of tangible personal property to purchasers in this state in excess of $1 million.

CA Local Tax:

California cities and counties are authorized by the Bradley-Burns Uniform Local Sales and Use Tax Law to impose a total tax of 1% on the sale or use of tangible personal property.

Although the Bradley-Burns Law preempts the area of sales and use taxation by a city or county, nothing in that law prohibits the levy and collection by a city or county "of any other substantially different tax authorized by the Constitution of California or by statute or by the charter of any charter city."

Other than Bradley-Burns, the most common local sales and use taxes are transactions and use taxes imposed within the boundaries of various transit, traffic, or other districts, as allowed by state law to finance operations of the district.

The board of supervisors of any county may levy a transactions and use tax, and county boards of supervisors are also authorized to impose special taxes.

CA SST/Streamlined Sales Tax:

California is not a member of the Agreement because, although it has enacted legislation authorizing it to enter into the Agreement, it has not yet enacted the changes to its laws necessary to comply with the Agreement's requirements.

CA Sourcing:

Origin

CA Resale / Exemption Certificates:

Exemption certificates - For transactions for which no specific exemption certificate is prescribed under California regulations, a valid exemption certificate must include the following:

  • the date;
  • the signature of the purchaser or of an agent or employee of the purchaser;
  • the purchaser's name and address;
  • the purchaser's seller's permit number or a note stating why the purchaser is not required to hold such a permit;
  • a description of the property purchased; and
  • a statement of the manner in which or purpose for which the property will be used so as to qualify for exemption.

California has specially prescribed exemption certificates for certain kinds of property or transactions.

Resale certificates - The burden of proving that a sale of tangible personal property is not at retail is upon the seller unless the seller timely takes in good faith a certificate from the purchaser that the property is purchased for resale. If a seller takes such a certificate in good faith from a person who is engaged in the business of selling tangible personal property and who holds a California seller's permit, the certificate relieves the seller from liability for the sales tax and the duty of collecting the use tax. A certificate will be considered timely if it is taken at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of the property to the purchaser.

CA Statute of Limitations:

The BOE must mail notices of deficiencies within three years after the later of (1) the end of the calendar month following the quarterly period to which the deficiency determination relates or (2) the date on which the return was filed. If no return has been filed, the limitations period is extended to eight years after the end of the calendar month following the quarterly period. For taxpayers who file annual returns, a notice of deficiency must be mailed within three years after the later of (1) the end of the calendar month following the one-year reporting period or (2) the date on which the return was filed; if no return has been filed, the notice must be mailed within eight years after the end of the calendar month following the one-year reporting period at issue.

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