California Remote Seller Sales Tax Requirements

A remote seller is a business that sells to customers in a state where it lacks a physical presence like an office or warehouse. After the 2018 Supreme Court decision in South Dakota v. Wayfair, states can require these sellers to collect sales tax based on their economic activity. California established rules for tax collection based on sales volume, requiring businesses to assess their sales into the state to determine if they must register, collect, and pay taxes.

Determining Your Collection Requirement

A remote seller must collect California sales tax if they establish economic nexus. This is triggered if a business’s total sales of tangible personal property delivered into the state exceed $500,000 in either the previous or current calendar year. The threshold is based on the total dollar value of sales, not the number of transactions.

The $500,000 threshold includes gross receipts from all retail sales of tangible personal property delivered into California, including sales made directly from a company’s website, by mail order, or by phone. Sales of services and non-tangible items like digital goods are not included in this calculation, as they are typically exempt from sales tax in California.

When a seller crosses the $500,000 threshold, they must immediately register and begin collecting tax on all subsequent sales. This obligation continues for the rest of the current calendar year and through the entire following calendar year, even if sales drop below the threshold. Failure to comply can lead to penalties, including back taxes and fines.

Registration and Permitting with the CDTFA

After meeting the economic nexus threshold, a remote seller must register for a seller’s permit with the California Department of Tax and Fee Administration (CDTFA). This permit authorizes the business to collect sales and use tax. The registration process is completed online through the CDTFA’s website and is free, although a security deposit may be required.

To complete the online application, a business must provide several pieces of information, including:

• Federal Employer Identification Number (FEIN)
• Legal business name and contact information
• Details about the business structure
• Names and addresses of owners or corporate officers
• The date business activities began in California
• North American Industry Classification System (NAICS) code
• Projections for monthly sales in the state

Registration is handled through the CDTFA’s Online Services portal. After an application is submitted and reviewed, the department will issue the seller’s permit. The CDTFA will also provide information needed to create an online account for filing returns and remitting taxes.

Collecting and Remitting California Sales Tax

After receiving a permit, a remote seller must determine the correct sales tax rate for each transaction. California has a statewide base rate of 7.25% plus district taxes that vary by the customer’s delivery address, which can result in combined rates of 10.75% or higher. To ensure accuracy, sellers must use the CDTFA’s official tax rate lookup tool to find rates for a specific address.

Sellers must file sales and use tax returns with the CDTFA at an assigned frequency, which can be monthly, quarterly, or annually. The frequency is based on the business’s sales volume. Returns must be filed online for every period, even if the seller had no California sales, which is known as a “zero return.”

The total tax collected must be remitted to the state. Payments can be made electronically through the CDTFA’s online services at the time of filing. Acceptable payment methods include electronic funds transfer or credit card. Sellers should maintain detailed records of all sales, including exempt sales, to accurately report and pay the correct amount of tax and to be prepared in the event of an audit.

Special Considerations for Remote Sellers

Many remote sellers use marketplace facilitators like Amazon or eBay. Under California law, these platforms are responsible for collecting and remitting sales tax on behalf of their third-party sellers for sales made through the platform. However, the gross sales volume from these marketplace transactions must still be included when a seller calculates their total sales to determine if they meet the $500,000 economic nexus threshold.

Sales for resale are another consideration for remote sellers. When a seller sells goods to a business that will resell them, the transaction is generally exempt from sales tax. The seller must obtain a valid California resale certificate from the buyer at the time of the sale to document the exemption. California does not accept out-of-state resale certificates on their own, meaning an out-of-state buyer must register for a California seller’s permit to make tax-exempt purchases for resale. Failing to collect and retain these certificates can make the seller liable for the uncollected tax during an audit.