Retailers are generally required to collect sales tax on tangible personal property sold to consumers within California.
Charges for services are not subject to sales tax unless they are included in the sale of tangible personal property. Similarly, in the case of computer programs and other digital products sold electronically, sales tax is not applicable If a buyer does not acquire tangible personal property in the transaction, such as storage media.
Consumers in California are subject to use tax. If there is no sales tax, consumers must pay use tax. A retailer’s sales price is usually subject to use tax if it is purchased for storage from that retailer and there is actual storage, use, or consumption of the product in California.
The California use tax will apply if a California consumer purchases the same merchandise from an outside retailer for delivery to California if California sales tax applies to the purchase from a retailer in the state.
Consumers must pay use tax even though they are the ones who owe it. According to section 6203 of the Revenue and Taxation Code (RTC), retailers who do business in California are required to collect California use tax on their sales to California consumers and remit it directly to the California Department of Tax and Fee Administration (CDTFA).
According to Bradley-Burns Uniform Sales and Use Tax Law, the 7.25 percent statewide sales and use tax rate includes local use taxes of 1.25 percent throughout the state.
California does not have a uniform rate for total sales and use taxes. There may be district taxes in addition to 7.25%. So, tax is not uniform in California.
California Assembly passed Bill No. (AB) 147 on April 25, 2019. Under this bill AB 147, California consumers will be liable for the use tax if they purchase tangible personal property from remote sellers on or after April 1, 2019, although the requirement is not retroactive.
California retailers are now required to register with CDTFA even if they did not previously have to do so if they exceeded the $500,000 threshold in the preceding or current calendar year. Retailers and their associated parties must comply with the requirement. Internet, mail-order catalogs, telephone, and any other means of delivering tangible goods to California are considered retailers.
In AB 147, The California Department of Tax and Fee Administration (CDTFA) will be required to register retailers located outside of California (including foreign sellers who live or are located outside the jurisdiction of the United States). According to section 267(b) of title 26 of the United States Code and the regulations, a person is related to a retailer if they have a relationship with the retailer. The retailer’s responsibility is to collect use tax from all related parties if the retailer and related parties sold more than $500,000 worth of tangible personal property in California during the previous calendar year or the current calendar year.
Before AB 147, California use tax registration and collection requirements remained the same. The requirement to register with CDTFA still applies to California retailers with a physical presence. There are a number of examples of physical presences in this state, including, but not limited to:
As part of AB 147, all retailers in California and elsewhere must comply with the following regulations: If a district imposes a district tax on a sale, the district use tax will be collected on that sale. As of a certain date in the previous or current calendar year, Together, the retailer and all people affiliated with the retailer sold more than $500,000 worth of tangible personal property in California. Special Notice L-684 provides details about the new collection requirement.
RKB Accounting has expertise in cross-border taxation and has been providing accounting and taxation services for the last fifteen years in Canada and USA. RKB services include incorporating a business on both sides of the border, bookkeeping, sales tax, payroll, and corporate and personal income tax. RKB’s expertise includes cross-border tax planning, long-term tax planning, helping business start-ups, business structure planning, and resolving complex tax matters.
Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information.