Use Tax Collection Requirements
Based on Sales into California
Due to the Wayfair Decision

Use Tax Collection Requirements Based on Sales into California Due to the Wayfair Decision

Overview

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 Revenue and Taxation Code (RTC) section 6203 (section 6203) (Stats. 2011, ch. 313, § 3) and the U.S. Supreme Court's June 21, 2018, decision in South Dakota v. Wayfair, Inc. (Wayfair) (Dock. No. 17-494).

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.

For more information about the effect of the Wayfair decision on the California state, local and district use tax collection requirements, see below.

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Sales tax is imposed on retailers, and generally applies to the retailers' gross receipts from their retail sales of tangible personal property made within California.

Sales tax does not apply to charges for services, unless the services are part of the sale of tangible personal property. Also, sales tax does not apply to charges for computer programs or other digital products that are transferred electronically if the purchaser does not obtain possession of any tangible personal property, such as storage media, in the transaction.

Use tax is imposed on consumers. When sales tax does not apply, use tax generally applies to the sales price of tangible personal property that was purchased from a retailer for storage, use, or other consumption in California and is actually stored, used, or otherwise consumed in the state. In general, if California sales tax would apply when tangible personal property is purchased from a retailer in California, then the California use tax would apply to a California consumer's purchase of the same merchandise from a retailer located outside California for delivery in California.

Even though use tax is owed by consumers, RTC section 6203 requires retailers who are "engaged in business in this state" to collect the California use tax owed on their sales to California consumers and remit the tax directly to the CDTFA.

RTC section 6203 expressly provides that the term retailer engaged in business in this state "means any retailer that has substantial nexus with this state for purposes of the commerce clause of the United States Constitution" and that definition is also incorporated into Regulation 1684, Collection of Use Tax by Retailers.

Prior to Wayfair, the U.S. Supreme Court had held in Quill Corp. v. North Dakota (1992) 504 U.S. 298 (Quill) that a retailer does not have a substantial nexus with a state for purposes of the U.S. Constitution's Commerce Clause, unless it has a physical presence in the state. So, retailers with a physical presence in this state are generally required to collect and remit the use tax. Examples of a physical presence in California include having a warehouse, an office, or a sample room in California, or any agent, representative or salesperson operating in California under the retailers' authority to sell, deliver, or install tangible personal property. Wayfair does not affect the collection requirements for retailers that were already required to collect the state use tax. If you were already required to be registered to collect California use tax, there will be no change in your registration obligations as a result of the recent Wayfair decision.

In the Wayfair decision, the U.S. Supreme Court considered a South Dakota law requiring a seller to collect the South Dakota sales tax if during the previous or current calendar year the seller's gross revenue from sales into South Dakota exceeded $100,000 or the seller made sales into South Dakota in 200 or more separate transactions. In upholding the South Dakota law, the Court overruled Quill's physical presence requirement for substantial nexus and held that the amount of sales required by the South Dakota law is sufficient to establish a substantial nexus with a state.

Accordingly, any retailer whose sales into California create a substantial nexus with California based on the sales thresholds upheld in the Wayfair decision is now a retailer engaged in business in the state for purposes of RTC section 6203 and Regulation 1684. Therefore, the CDTFA requires such retailers to register and collect California state use tax in accordance with RTC section 6203 and Regulation 1684 beginning April 1, 2019, regardless of whether they have a physical presence in California. These retailers include retailers that sell tangible goods for delivery into California through the Internet, mail-order catalogs, telephone, or by any other means.

The current statewide California sales and use tax rate of 7.25 percent includes the rates of the 1.25 percent local use taxes imposed throughout California under the Bradley-Burns Uniform Sales and Use Tax Law.

Retailers engaged in business in the state are required to collect local use tax pursuant to RTC section 7202 and section 7203. Accordingly, any retailer with a substantial nexus with California under Wayfair will have the same use tax collection obligation as any other retailer engaged in business in California. Therefore, the CDTFA will require such retailers to collect local use tax beginning April 1, 2019, and remit it to the CDTFA so it can be distributed to the appropriate local jurisdictions, regardless of whether they have a physical presence in California. Wayfair does not affect the allocation of local sales and use tax or the collection requirements for retailers that were already required to collect local use tax.

For more information about reporting local use tax, visit our Local and District Taxes webpage.

The total sales and use tax rate is not the same throughout California. Total sales and use tax rates may be higher than the 7.25 percent statewide base rate in areas where there are voter-approved district taxes.

Unlike with local taxes, only retailers engaged in business in a taxing district are required to collect that district's use tax on their sales for delivery into the district. This is because RTC section 7262 requires district use tax ordinances to incorporate the provisions of RTC section 6203 requiring retailers engaged in business in the state to collect the use tax, but also requires the name of the taxing district to be substituted for the word "state" in the phrase "retailer engaged in business in this state" and in the definition of that phrase.

Accordingly, any retailer whose sales into a district would create a substantial nexus with that district based on the sales thresholds upheld in the Wayfair decision is now a retailer engaged in business in that district for district tax purposes, and the CDTFA requires such a retailer to collect that district's use tax beginning April 1, 2019, and remit it to the CDTFA so it can be distributed to the taxing district, regardless of whether the retailer has a physical presence in the district. This applies to in-state retailers, out-of-state retailers already engaged in business in the state, and out-of-state retailers who now have a substantial nexus with the state under Wayfair.

For more information about reporting district use tax, visit our Local and District Taxes webpage.

As previously explained, beginning April 1, 2019, a new district use tax collection requirement pursuant to the Wayfair decision applies to both in-state and out-of-state retailers.

Retailers are responsible for collecting the tax at the statewide rate of 7.25 percent plus any district taxes that apply to those areas in which the retailers are considered engaged in business in a taxing district. Generally if you are a retailer and your business is located in a taxing district, you are engaged in business in that district. In addition, a retailer is considered engaged in business in a district and required to collect and pay the district use tax to the CDTFA if, for example, but not limited to, the retailer:

  • Maintains, occupies, or uses any type of office, sales room, warehouse, or other place of business in the district, whether the use is temporary or permanent, direct or indirect, or through an agent,
  • Has any representative, agent, salesperson, canvasser, etc., operating in the district for the purpose of taking orders, making sales or deliveries, installing, or assembling tangible personal property,
  • Receives rentals from a lease of tangible personal property located in the district, or
  • Sells or leases vehicles or undocumented vessels which will be registered in the district.

Beginning April 1, 2019, in addition to the above criteria, a retailer is also considered engaged in business in each district that during the preceding or current calendar year:

  • The retailer's sales into the district exceed $100,000, or
  • The retailer made sales into the district in two hundred (200) or more separate transactions.

Any retailer whose sales for delivery into a district reach either of the above sales thresholds is required to collect the district's use tax from its customers and pay it to the CDTFA regardless of whether the retailer has a physical presence or retail location in California.

Example 1 – Retailer without a physical presence in California:

You are located outside of California and have no physical presence in this state. You make sales through your website and prior to April 1, 2019, you were not required to be registered with the CDTFA. However, during 2018, your sales of merchandise into California exceeded $200,000. You ship all sales to your customers by common carrier. Of those sales, over $100,000 were made for delivery into the city of San Jose which imposes a district tax; the remaining sales were made for delivery throughout the state and the sales did not exceed $100,000 in any other area in California.

Under the Wayfair decision, you are considered engaged in business in California and required to register with the CDTFA and collect the use tax at the statewide rate on your retail sales to California customers on and after April 1, 2019. In addition, you are also considered engaged in business in the city of San Jose (a taxing district) because your 2018 sales exceeded $100,000 into that district. As such you are required to collect San Jose's district use tax at the San Jose rate from your customers on your sales for delivery in the city of San Jose and pay the entire tax collected to the CDTFA. If your sales into other areas in California do not exceed $100,000 or equal 200 or more separate transactions during the preceding or current calendar year and you are not otherwise considered engaged in business in any other district, you are only required to collect the statewide rate of 7.25 percent from your customers on your sales for delivery into those areas.

Example 2 – Retailer with a retail location in California and registered with the CDTFA

You are a retailer located inside California with a single retail location in Los Angeles County. You regularly ship merchandise by common carrier directly to your customers throughout California. You do not have any connection to districts outside of Los Angeles County other than by shipping merchandise via common carrier to your customers.

During 2018, your sales of merchandise to California customers exceeded $200,000; of that amount more than $100,000 in sales were for delivery in the city of San Jose, which imposes a district tax. The remaining sales were made for delivery throughout the state and the sales did not exceed $100,000 in any other area in California.

In addition to being engaged in business in California and Los Angeles county (your retail location), under the Wayfair decision, you are also considered engaged in business in the city of San Jose because your 2018 sales exceeded $100,000 into that district. As such, beginning April 1, 2019, you are required to collect San Jose's district use tax at the San Jose rate from your customers on your sales for delivery in San Jose and pay the entire tax collected to the CDTFA. If your sales into other taxing districts in California do not exceed $100,000 or equal 200 or more separate transactions during the preceding or current calendar year and you are not otherwise considered engaged in business in any other district, you are only required to collect the statewide rate of 7.25 percent from your customers on sales made for delivery in those districts.

For more information about California city and county sales and use tax rates and to verify current tax rates, visit our California City & County Sales & Use Tax Rates webpage. You can also look up the tax rate by address using the Find a Sales and Use Tax Rate by Address tool.

In those areas in California where there are voter-approved district taxes, the total tax rate includes the standard statewide tax rate plus the district tax rate (which varies from district to district).

For more information about California city and county sales and use tax rates and to verify current tax rates, visit our California City & County Sales & Use Tax Rates webpage. You can also look up the tax rate by address using the Find a Sales and Use Tax Rate by Address tool.

Our rate look-up tool allows you to find the tax rate by entering an individual address. Our rate look-up service may also be integrated into your sales software to compute the tax rate for each of your sales. To determine if our service will operate with your application, please select the Looking for the Tax Rate API link at the bottom of the rate look-up tool page.

The new requirements to collect the use tax as a result of the Wayfair decision only apply prospectively to sales made on and after April 1, 2019.

However, since California consumers are responsible for paying the state, local, and district use tax on purchases from retailers that do not collect the tax, as a courtesy to your customers, you may choose to register and collect the tax prior to April 1, 2019.

Also, if you are a retailer engaged in business in California, but you are not engaged in business in a district, your customers are generally liable for the district use tax on tangible personal property purchased from you for storage, use or other consumption in that district. As a courtesy to your customers, you may choose to collect the district use tax from them and report and pay it to the CDTFA.

If you are not currently registered with the CDTFA, you may register with us online.

From our Taxpayer Online Services Portal; scroll down to Registration, select Register a New Business Activity or Location, and follow the prompts. Even if you are not required to register, you may voluntarily register for a permit, Certificate of Registration – Use Tax to collect and pay use tax as a convenience to your California customers.

In addition to holding a permit, you may also need to register for another license or permit with the CDTFA. For more information about the permits or licenses CDTFA administers, please see our Permits & Licenses page.

If you were considered a retailer engaged in business in this state prior to the Wayfair decision but have not yet registered with the CDTFA, you may qualify for our Voluntary Disclosure Program.

Under this program, retailers that voluntarily come forward and register may be relieved of penalties and/or have the period that they are liable for unreported use tax reduced from eight years to three. To find out more about this program and how to apply, visit Out-of-State Voluntary Disclosure Program webpage.

Frequently Asked Questions (FAQ's) about Use Tax Collection Requirements Due to Wayfair Decision

IMPORTANT NOTE – The requirements to register and collect the California use tax prior to the Wayfair decision remain in effect. That is, retailers with a physical presence in California are still generally required to be registered with the CDTFA. Examples of a physical presence in this state include, but are not limited to:

  • Maintaining inventory or office locations in California.
  • Having representatives in California for purposes of taking orders, making sales or deliveries, or installing or assembling tangible personal property.
  • Leasing equipment, including computer servers, in California.

For more information on the registration requirements, see our online Tax Guide for Out-of-State Retailers.

The questions and answers below pertain mainly to out-of-state retailers that do not have a physical presence in California and were not required to be registered with the state prior to the Wayfair decision. The questions and answers below may help you better understand the new use tax collection requirement as a result of the Wayfair decision.

No. State, local and district use tax is imposed on consumers and consumers who purchase merchandise from retailers that are not registered with the CDTFA are responsible for paying the use tax directly to the state.

If during the calendar year 2018, you made sales for delivery into California and the total sales price charged was greater than $100,000 or you made sales for delivery in California in 200 or more separate transactions, you are required to register with the CDTFA to collect the use tax due on your taxable sales made on and after April 1, 2019, and pay that tax to the CDTFA.

You are considered to have met the above sales thresholds based on your total sales price of tangible personal property or total number of transactions, which may include nontaxable sales, such as sales for resale.

Example 1 – Retailer makes taxable sales and sales for resale

You are located outside of California and do not have a physical presence in this state. During calendar year 2018, your sales for delivery into California totaled $120,000. Those sales included $70,000 of sales for resale to other retailers who will resell the merchandise in the regular course of their businesses and $50,000 of retail sales to consumers. Because your total sales in calendar year 2018 exceeded $100,000, you are considered engaged in business in this state and required to register with the CDTFA beginning April 1, 2019. You are required to collect the use tax due on your taxable retail sales of tangible personal property into California; your valid sales for resale are not subject to tax.

In addition, if at any time during the calendar year 2019, your sales for delivery into California meet either of the above thresholds, you are required to register with the CDTFA to collect the use tax from your California customers.

Example 2 – Retailer without a physical presence in California; $100,000 sales threshold:

You are located outside of California and do not have a physical presence in this state. During calendar year 2018, your sales for delivery into California did not exceed $100,000 nor did your make 200 or more separate transactions for delivery into California. Therefore, since you did not meet either of these sales thresholds in calendar year 2018, you are not required to register with the CDTFA as of April 1, 2019.

However, during 2019, your sales increased and by September 30, 2019, your sales for delivery into California totaled $99,000. In October 2019, you make the following sales for delivery into California:

  • $500 on October 4, 2019
  • $300 on October 6, 2019
  • $400 on October 7, 2019

On October 7, 2019, your sales for delivery into California exceed $100,000 for 2019 ($99,000 + $500 + $300 + $400 = $100,200). You are required to register with the CDTFA on October 7, 2019, and begin collecting the use tax from your customers on your retail sales for delivery into California. You are not liable for collection of the use tax on sales delivered to California made prior to October 7, 2019, including the $400 transaction that put you over the $100,000 threshold. Your customers will remain liable for the payment of the use tax on these transactions.

Example 3 – Retailer without a physical presence in California; 200 separate transactions threshold:

You are located outside of California and do not have a physical presence in this state. During calendar year 2018, your sales for delivery into California did not exceed $100,000 nor did your make 200 or more separate transactions for delivery into California. Therefore, since you did not meet either of these sales thresholds in calendar year 2018, you are not required to register with the CDTFA as of April 1, 2019.

Your sales to customers total $150.00 or less and you do not expect to exceed the $100,000 sales threshold in 2019. However, during 2019, your sales volume increased and by June 30, 2019, you made 195 separate sales transactions for delivery into California. In July 2019, you make the following number of sales for delivery into California:

  • Two separate sales transactions on July 5, 2019
  • Three separate sales transactions on July 10, 2019
  • Four separate sales transactions on July 15, 2019

On July 10, 2019, your sales for delivery into California equal 200 separate sales transactions (195 + 2 + 3 = 200). You are required to register with the CDTFA on July 10, 2019, and begin collecting the use tax from your customers on your retail sales for delivery into California. You are not liable for collection of the use tax on sales made for delivery into California up through July 10, 2019, including the three separate sales made on July 10, 2019, that brought you up to the 200 separate transactions threshold. Your customers will remain liable for the payment of the use tax on these transactions.

See IMPORTANT NOTE above (just under the FAQ's heading) regarding the use tax collection requirements prior to the Wayfair decision.

If you were considered engaged in business in California before April 1, 2019, then you may be liable for use taxes that you were required to collect and pay to the CDTFA on your sales made prior to April 1, 2019. The CDTFA has eight years to assess a use tax liability owed by a retailer that did not file a return. This assessment period may be reduced to three years if you qualify under our Voluntary Disclosure program. To find out more about this program and how to apply, visit Out-of-State Voluntary Disclosure Program webpage.

You were considered to be engaged in business in California prior to the Wayfair decision and you continue to be considered engaged in business in California after the decision if, but not limited to:

  • You have a physical presence in California, i.e., maintaining inventory or office locations.
  • You have representatives operating in California for purposes of taking orders, making sales or deliveries, installing, or assembling tangible personal property.
  • You receive rental payments on leased personal property located in California.

Yes. If you meet either of the sales thresholds pursuant to the Wayfair decision on your sales for delivery into California, you are required to register with the CDTFA to collect the use tax from your customers. However, the online marketplace may collect and pay the tax on your behalf. You should contact your marketplace for more information.

See IMPORTANT NOTE above (just under the FAQ's heading) regarding the use tax collection requirements prior to the Wayfair decision.

Yes. If you meet either of the sales thresholds pursuant to the Wayfair decision on your sales for delivery into California, you are required to register with the CDTFA to collect the use tax from your customers.

See IMPORTANT NOTE above (just under the FAQ's heading) regarding the use tax collection requirements prior to the Wayfair decision.

If you do not meet either of the sales thresholds pursuant to the Wayfair decision and are not otherwise considered to be engaged in business in California, you are not required to register with the CDTFA.

Please keep in mind that if you continue to make sales into California, you may, at a later date, meet the sales thresholds and be required to register with the CDTFA. You should keep records of your sales into California.

See IMPORTANT NOTE above (just under the FAQ's heading) regarding the use tax collection requirements prior to the Wayfair decision.

No. You will remain registered with the CDTFA to collect use tax. However, there may be changes in your obligation to collect district use tax.

Use tax does not apply to your sales of merchandise to a customer who will resell the merchandise in the regular course of its business. Therefore, you are not required to collect the use tax on your sales to distributors who will resell the merchandise in the regular course of business.

See IMPORTANT NOTE above (just under the FAQ's heading) regarding the use tax collection requirements prior to the Wayfair decision.

In order to document that your sales into California are nontaxable sales for resale, you should obtain a signed resale certificate from your customer (distributor/wholesaler). A resale certificate may be any document, letter, purchase order, etc., but it must contain the following information:

  • The name and address of the purchaser's business.
  • The purchaser's seller's permit number or an explanation stating why the purchaser is not required to hold a seller's permit.
  • A description of the property to be purchased. A statement that the described property is being purchased for resale. The document must contain the phrase "for resale." Phrases such as "nontaxable" or "exempt" are not acceptable.
  • The date of the document (an otherwise valid resale certificate will not be considered invalid solely because it is undated).
  • The signature of the purchaser, purchaser's employee, or authorized representative.

For more information, see publication 103, Sales for Resale.

Each sale that you make to a customer is a separate transaction, regardless of how many items the customer purchases. For example, there is only one transaction when your customer purchases three items from you in the same sale and there are three transactions when your customer purchases three items from you in three separate sales.

There is no exception for seasonal retailers. If your sales for delivery into California exceed $100,000 or you make sales for delivery into California in 200 or more separate transactions during the preceding or current calendar year, you are required to register with the CDTFA and collect the use tax from your customers and report and pay the amount to the state. Seasonal sellers may apply for a temporary permit using our online registration.

See IMPORTANT NOTE above (just under the FAQ's heading) regarding the use tax collection requirements prior to the Wayfair decision.

Sales tax applies to retailers' gross receipts from their retail sales of tangible personal property made within California. Sales tax does not apply to charges for services, unless the services are part of the sale of tangible personal property. When sales tax does not apply, use tax generally applies to the sales price of tangible personal property that was purchased from a retailer for storage, use, or other consumption in California and actually stored, used, or otherwise consumed in the state. In general, if California sales tax would apply when tangible personal property is purchased from a retailer in California, then California use tax would apply to a California consumer's purchase of the same merchandise from a retailer located outside California for delivery in California.

In general all tangible merchandise and goods, such as household items, appliances, electronics, clothes, shoes, books, computers, cell phones, personal care items, toys and games, arts and crafts, office supplies, tools, etc. are subject to tax.

However, certain items are specifically exempt by law. Examples of items exempt from tax include, but are not limited to the following:

  • Food products for human consumption.
  • Animal life, feed for animal life, seeds, and plants the products of which are normally food for human consumption.
  • Containers used to collect or store human blood, plasma, blood products, or blood derivatives.
  • Prescription medicines sold under specific circumstances (see Sales and Use Tax Regulation 1591, Medicines and Medical Devices).

In addition, the following charges are not considered charges for tangible personal property, and therefore, are not subject to tax:

  • Admission charges to amusement parks, theaters, sports events, golf courses, etc.
  • Finance charges.
  • Charges for real property.
  • Charges for securities, such as stocks, bonds, and memberships in limited liability companies.
  • Charges for services unless the services are part of the sale of tangible personal property.
  • Charges for transportation, such as bus, airplane, or train tickets.

The CDTFA is currently compiling a Tax Matrix to assist you in understanding California's sales and use tax laws. We will post the Tax Matrix on this webpage – please check back.

Filing Tax Return and Payment

When you hold a permit, you have to file a return and pay any taxes or fees you may owe.

Tax Return Filing Deadlines – Find your filing due dates.

File a Tax Return Online – File your return quickly and easily online.

Online Payment Options – Make online payments toward your current and past due tax liabilities.

For More Information

We can help you with any additional questions or assistance you may need in determining if you are required to register with the CDTFA. Please contact our Out-of-State Office:

California Department of Tax and Fee Administration
Out-of-State Office
3321 Power Inn Rd., Ste. 130
Sacramento, CA 95825-3893
1-916-227-6600