California Adopts Economic Nexus, But Threshold Uncertain

On Tuesday the California Department of Tax and Fee Administration announced that beginning April 1, 2019, California will require out-of-state retailers to collect and remit use tax if they have $100,000 in sales or 200 transactions. The $100,000 threshold is far from the $500,000 threshold discussed back in August 2018 through draft legislation. In addition, there were comments from several lawmakers on Tuesday that there is a very good chance threshold will be higher in any final legislation that could be passed in 2019.

Based on our experience with analyzing the rules and laws that have been in effect since last July, we have several questions that we hope will be answered in the coming months.

  • The language currently discusses out-of-state retailers. We hope California will be clear on whether wholesale or exempt transactions count toward the threshold.
  • Clarify how the threshold will apply to localities, it appears that the intention is that a retailer has to hit a threshold in a specific locality in order to be required to collect the local tax.

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