Effective April 1, 2019, the California Department of Tax and Fee Administration (CDTFA) will be implementing the sales and use tax approved by the U.S. Supreme Court in Wayfair, Inc. v. South Dakota. Because of Wayfair, states are authorized to begin collecting sales and use tax from online and out-of-state retailers, who may or may not have a physical presence in California. Therefore, businesses within California, as well as out-of-state business with transactions in California, must begin collecting and remitting district use taxes for districts in which the thresholds are met – 200 or more annual sales transactions or over $100,000 in yearly sales in California. Accordingly, the CDTFA administration will begin issuing notices to affected retailers in the upcoming months.
Fortunately, the new use tax collection requirement is not retroactive and only applies to sales on and after April 1, 2019. In addition, California Senators have already been discussing their role to ensure that California implements Wayfair effectively, but also fairly and without being too burdensome on the vast number of small businesses. States such as Washington, Tennessee, West Virginia and Georgia have already began implementing similar use tax requirements. We believe its only a matter of time until the majority, if not all, states will follow suit. Businesses should be aware of the multitude of thresholds and effective dates to ensure they are positioned timely for the newly enacted tax collection requirement.
Should your business immediately register in all states they have transactions? Not necessarily. Businesses should deal with each state on a case by case basis and evaluate the pros and cons of collecting or not collecting. Start with states that have sooner effective dates. Did your sales exceed the threshold for that particular state? If you believe your business is close to the threshold, monitor your sales closely.
If you are already required to collect California use tax, there will be no change in your registration and collection obligations. If you are not already registered with the CDTFA, you may register at www.cdtfa.ca.gov