New Tax Thresholds Impacting Businesses
California Sales and Use Tax Requirements & The Partial Manufacturer’s Exemption
Beginning April 1, 2019, retailers located outside of California are required to register with the California Department of Tax and Fee Administration (CDTFA), collect the California use tax, and pay the tax to the CDTFA based on the amount of their sales into California, even if they do not have a physical presence in the state. The new collection requirement applies to a retailer if during the preceding or current calendar year:
· The retailer’s sales into California exceed $100,000, or
· The retailer made sales into California in two hundred (200) or more separate transactions.
The new collection requirement is pursuant to a Supreme Court Case, South Dakota v. Wayfair, Inc.
The new collection requirement will apply to taxable sales of tangible personal property to California consumers on and after April 1 2019, and is not retroactive. Retailers reaching either of the above sales thresholds 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.
Beginning on July 1, 2014, manufacturers and certain research and developers may qualify for a partial exemption of sales and use tax on certain manufacturing and research and development equipment purchases and leases. To be eligible for this partial exemption, you must meet all three of these conditions:
· Be engaged in certain types of business, also known as a “qualified person.”
· Purchase “qualified tangible personal property.”
· Use that qualified tangible personal property in a qualified manner
The manufactures and certain research and developers sales and use tax exemption is a partial exemption. Therefore, distributors, wholesalers, online retailers etc. should enact a new process when making sales to “qualified persons” in California:
1. Determine if nexus is established in California based on the new thresholds (above).
2. Once nexus is determined, be compliant with the sales and use tax requirements. Being the manufacturer’s exemption is a partial exemption, there will need to be compliance with collecting and remitting sales and use tax.
If you would like to discuss how the new thresholds may impact your business, please do not hesitate to contact CDH.