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Business Taxes Law Guide – Revision 2019
 

Sales And Use Tax Law

CHAPTER 3. THE USE TAX

Article 1. Imposition of Tax

Section 6203


6203. Collection by retailer. (a) Except as provided by Sections 6292 and 6293, every retailer engaged in business in this state and making sales of tangible personal property for storage, use, or other consumption in this state, not exempted under Chapter 3.5 (commencing with Section 6271) or Chapter 4 (commencing with Section 6351), shall, at the time of making the sales or, if the storage, use, or other consumption of the tangible personal property is not then taxable hereunder, at the time the storage, use, or other consumption becomes taxable, collect the tax from the purchaser and give to the purchaser a receipt therefor in the manner and form prescribed by the board.

(b) As respects leases constituting sales of tangible personal property, the tax shall be collected from the lessee at the time amounts are paid by the lessee under the lease.

(c) "Retailer engaged in business in this state" as used in this section and Section 6202 means any retailer that has substantial nexus with this state for purposes of the commerce clause of the United States Constitution and any retailer upon whom federal law permits this state to impose a use tax collection duty. "Retailer engaged in business in this state" specifically includes, but is not limited to, any of the following:

(1) Any retailer maintaining, occupying, or using, 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.

(2) Any retailer having 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.

(3) As respects a lease, any retailer deriving rentals from a lease of tangible personal property situated in this state.

(4) Any retailer that is a member of a commonly controlled group, as defined in Section 25105, and is a member of a combined reporting group, as defined in paragraph (3) of subdivision (b) of Section 25106.5 of Title 18 of the California Code of Regulations, 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, 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.

(5) (A) Any retailer entering into an agreement or agreements under which a person or persons in this state, for a commission or other consideration, directly or indirectly refer potential purchasers of tangible personal property to the retailer, whether by an Internet-based link or an Internet Web site, or otherwise, provided that both of the following conditions are met:

(i) 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 ten thousand dollars ($10,000).

(ii) The retailer, within the preceding 12 months, has total cumulative sales of tangible personal property to purchasers in this state in excess of one million dollars ($1,000,000).

(B) An agreement under which a retailer purchases advertisements from a person or persons in this state, to be delivered on television, radio, in print, on the Internet, or by any other medium, is not an agreement described in subparagraph (A), unless the advertisement revenue paid to the person or persons in this state consists of commissions or other consideration that is based upon sales of tangible personal property.

(C) Notwithstanding subparagraph (B), an agreement under which a retailer engages a person in this state to place an advertisement on an Internet Web site operated by that person, or operated by another person in this state, is not an agreement described in subparagraph (A), unless the person entering the agreement with the retailer also directly or indirectly solicits potential customers in this state through use of flyers, newsletters, telephone calls, electronic mail, blogs, microblogs, social networking sites, or other means of direct or indirect solicitation specifically targeted at potential customers in this state.

(D) For purposes of this paragraph, "retailer" includes an entity affiliated with a retailer within the meaning of Section 1504 of the Internal Revenue Code.

(E) This paragraph shall not apply if the retailer can demonstrate that the person in this state 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 United States Constitution.

(d) Except as provided in this subdivision, a retailer is not a "retailer engaged in business in this state" under paragraph (2) of subdivision (c) if that retailer's sole physical presence in this state is to engage in convention and trade show activities as described in Section 513(d)(3)(A) of the Internal Revenue Code, and if the retailer, including any of his or her representatives, agents, salespersons, canvassers, independent contractors, or solicitors, does not engage in those convention and trade show activities for more than 15 days, in whole or in part, in this state during any 12-month period and did not derive more than one hundred thousand dollars ($100,000) of net income from those activities in this state during the prior calendar year. Notwithstanding the preceding sentence, a retailer engaging in convention and trade show activities, as described in Section 513(d)(3)(A) of the Internal Revenue Code, is a "retailer engaged in business in this state," and is liable for collection of the applicable use tax, with respect to any sale of tangible personal property occurring at the convention and trade show activities and with respect to any sale of tangible personal property made pursuant to an order taken at or during those convention and trade show activities.

(e) Any limitations created by this section upon the definition of "retailer engaged in business in this state" shall only apply for purposes of tax liability under this code. Nothing in this section is intended to affect or limit, in any way, civil liability or jurisdiction under Section 410.10 of the Code of Civil Procedure.

History.—Added by Stats. 2011, Ch. 313 (AB 155), in effect September 23, 2011, but operative September 15, 2012.

Constitutionality, construction.—The requirement that retailers collect the tax is valid. A foreign corporation not qualified to do intrastate business in California, but represented in this state by two general agents, each of whom occupies an office leased by the corporation and used exclusively for the furtherance of its business, maintains a place of business in this state and may be required to collect the tax. Felt & Tarrant Manufacturing Co. v. Gallagher (1939) 306 U.S. 62.

Constitutionality.— The U.S. Supreme Court ruled that an out-of-state seller’s physical presence in a taxing state was not necessary for the state to require a seller to collect and remit the state’s sales and use tax, overruling the "physical presence rule" of its earlier decisions. The U.S. Supreme Court held the South Dakota statute satisfied the substantial nexus requirement because it only applied to sellers who engage in a significant quantity of business in the State, and thus, the retailers could be required to collect and remit the state’s sales and use tax. South Dakota v. Wayfair, Inc., et al. (2018) 585 U.S. ___, 138 S.Ct. 2080.

Purchaser's liability to retailer.—The primary liability for the tax is upon the purchaser. Consequently, when a retailer pays an amount of tax to the state in satisfaction of the liability imposed on him by this section, the law implies an obligation on the part of the purchaser to reimburse the retailer for the amount so paid. Brandtjen & Kluge v. Fincher (1941) 44 Cal.App.2d Supp. 939.

What constitutes maintaining place of business.—A foreign law book publishing company is maintaining a place of business and making sales in this state and, therefore, required to collect the use tax from its customers, where it maintains large libraries in law offices in the state, in return for the use of which its salesmen are allotted office space, which it advertises as its local addresses, where in response to continuous solicitation of orders there is a regular flow of books into this state, and where its salesmen receive initial installment payments, exercise a limited discretion in respect of collections on delinquent accounts, and frequently consummate sales to customers to whom unordered books are sent. West Publishing Co. v. Superior Court, San Francisco (1942) 20 Cal.2d 720.

Requiring the law book publishing company described in the preceding paragraph to collect the use tax with respect to mail order sales to customers in this state as well as with respect to sales resulting from solicitation by its employees here does not violate either the Commerce Clause or the Fourteenth Amendment of the Federal Constitution. People v. West Publishing Co. (1950) 35 Cal.2d 80.

Insurance company not exempted.—An insurance company is not relieved from the responsibility of collecting a use tax by the constitutional provision exempting it from state sales taxes, when it sells automobiles belonging to it to private individuals, since the use tax is paid by the ultimate purchaser, not the insurance company. Beneficial Standard Life Ins. Co. v. State Board of Equalization (1962) 199 Cal.App.2d 18.

Liability of retailer.—National bank which retailed checks to depositors and failed to collect the use tax due must pay the same from its own funds. Bank of America v. State Board of Equalization (1962) 209 Cal.App.2d 780.

Sale outside state and leased back instate.—Where a California retailer sold two oil tankers with title and possession passing out of state and where the vessels were immediately leased back to the retailer and were used in California in intrastate commerce, the court held that the retailer was liable for the collection of the use tax. Union Oil Co. v. State Board of Equalization (1963) 60 Cal.2d 441, appeal dismissed, 377 U.S. 404.

Out-of-state border stores do not have to collect use tax on over-the-counter credit sales.—A retailer otherwise engaged in business in California does not have to collect California use tax on over-the-counter credit sales at the retailer's stores in Klamath Falls, Oregon, and Reno, Nevada, to customers with charge accounts bearing a California address. Montgomery Ward & Co. v. State Board of Equalization (1969) 272 Cal.App.2d 728, cert. denied (1970) 396 U.S. 1040.

Seller's in-state offices not related to mail order sales.—An out-of-state seller must collect use tax on its mail order sales, even though the seller's in-state offices only solicited advertising which was unrelated to the mail order sales. The seller's offices gained advantages of municipal services, and satisfied commerce clause and due process requirement of some definite link, or minimum connection, between the state and the retailer. National Geographic Society v. California Board of Equalization (1977) 430 U.S. 551.

Tax Injunction Act No Bar to Federal Jurisdiction.—A direct mail advertising and trade association brought an action, based on the Commerce Clause and the Due Process Clause of the U.S. Constitution, challenging the requirement that interstate mail order retailers collect use tax from their California customers. The court held that the Tax Injunction Act did not apply to bar federal jurisdiction over the matter. It rejected the Board's argument that the association members had a plain, speedy, and efficient remedy under state law since they could pay the contested taxes and file for a refund. Direct Marketing Association, Inc. v. Bennett (9th Cir., 1990) 916 F.2d 1451.

Retailer's use of teachers to solicit orders from students.—The taxpayer's use of teachers and school librarians to solicit sales from students constituted sufficient nexus to require the taxpayer to collect use taxes imposed on the students' purchases. Once the teachers and librarians undertook to solicit orders, they were acting under the taxpayer's authority as its agents and taxpayer owed tax measured by the selling price to the students. Scholastic Book Clubs, Inc. v. State Board of Equalization (1989) 207 Cal.App.3d 734.

Related corporation's liability for use tax collection.—A corporation who had no physical presence in California was not required to collect use tax under former subdivision (g) based on the physical presence of a related corporation in California. Current, Inc. v. State Board of Equalization (1994) 24 Cal.App.4th 382.

Online retailer had sufficient presence in state through representative accepting purchaser's returns.—An out-of-state retailer must collect use tax arising from its sales, where its in-state representative accepts returns from the retailer's purchasers. The in-state representative was authorized to take the returns, and the taking of returns is part of the selling process. Borders Online, LLC v. State Board of Equalization (2005) 129 Cal.App.4th 1179."