Changes Made to California Use Tax Following Supreme Court Decision

 Posted on May 20, 2019 in Small Business Taxes

A recent U.S. Supreme Court case has prompted California legislators to change a state use tax law that affects out-of-state sellers. Under the new law, some retailers outside of California must register with the California Department of Tax and Fee Administration (CDTFA) and collect California use tax.

The law applies to remote sellers who have total sales of $500,000 in tangible personal property for delivery in California in the preceding or current calendar year. The law went into effect on April 1, 2019, so these sellers are required to collect and remit taxes on sales which occurred on or after this date. 

Examples of out-of-state sellers that may be affected by this change include online merchants, mail-order catalogs, or telephone salespeople. Retailers with a physical presence in California will continue to have the same registration and use tax obligations as before the new law was passed.

The CDTFA offers a voluntary disclosure program for those retailers who have yet to register. This may allow a retailer or other small business owner to be relieved of penalties and shorten the period for which they owe taxes.

The Wayfair Decision

The reason that the use tax law changed is due to the 2018 U.S. Supreme Court case South Dakota v. Wayfair, Inc. This case changed the requirement that a state cannot tax a seller who does not have a physical presence in the state. This had been the law since 1992, when the high court decided Quill Corp. v. North Dakota.

In 2015, Justice Anthony Kennedy suggested in a concurring opinion that Quill should be reviewed, given the seismic changes occurring in the area of sales made between buyers and sellers living in different states that have been facilitated by the internet. These types of online sales have ballooned in recent years. The Government Accountability Office has estimated that states lost over $13 billion in taxes in 2017 from taxes that they could not collect due to the Quill decision.

Call a San Jose Small Business Tax Lawyer

The California Department of Tax and Fee Administration states on its website that its “tax and fee laws can be complex and difficult to understand.” If your business needs help in determining its tax obligations, John D. Teter Law Offices can provide the legal assistance you need. Our trusted San Jose, CA tax law attorney will review the facts of your case and advise you on how to be compliant with all federal, state, and local tax laws. To set up a meeting with our attorney, call 408-866-1810.

Sources:

https://www.cdtfa.ca.gov/industry/wayfair.htm

https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf