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If you do not comply with California’s sales tax requirements, the resulting errors on your personal or business tax returns are likely to trigger an internet sales tax audit – which, in turn, could generate civil penalties or even give rise to a criminal tax investigation. If you sell products online to California residents, it is in your best interests to review your business records with a sales tax audit attorney who has relevant experience representing e-commerce and online companies in Sacramento.
See our Sales Tax Q and A library
At the Tax Law Office of David W. Klasing, we are Sacramento tax attorneys on the cutting edge of internet sales tax legislation, keeping diligently abreast of evolving California regulations so that you don’t have to. From tax audits and criminal tax investigations, to bookkeeping and accounting services for e-businesses, to personal and business tax preparation, our award-winning online business tax attorneys have actionable answers to all of your internet sales tax questions.
There is currently no federal sales tax law. However, most states enforce their own regulations around sales tax, including California. (There are fewer than half a dozen U.S. states which do not impose sales tax, currently Delaware, Montana, Alaska, Oregon, and New Hampshire.)
If you sell products online in the state of California, or if you operate an internet business with headquarters in California, you may have “economic nexus” with the state, making you responsible for collecting and remitting California sales tax to the California Department of Tax and Fee Administration (CDTFA). This requirement has been applied to brick-and-mortar retailers for many years, but only recently applied to smaller online businesses, spurred by a major Federal Supreme Court ruling in Dakota v. Wayfair, Inc., discussed here. It is also important to note that state sales tax requirements may apply to Amazon third-party sellers, such as individuals who sell handmade goods or refurbished electronics on Amazon.
Whether you own your own company or sell products through another business-like Amazon or Etsy, you must meet the state’s requirements if your internet transactions meet or exceed certain thresholds. These thresholds vary from state to state, making it vital to obtain California-specific tax assistance from a California tax lawyer or CPA. Physical presence is no longer necessary to create nexus for California to tax out of state retailers and merely economic presence will suffice to create tax obligations in California. The threshold in California to establish “economic nexus” is either (1) 200 transactions total, or (2) transactions amounting to or exceeding $100,000 in sales.
How Are Internet Sales Transactions Taxed in California?
Operating in the virtual space does not shield you from state or federal tax requirements that apply to physical businesses. On the contrary, online businesses often attract special scrutiny from state tax agencies – along with IRS auditors. In addition to sales tax requirements, online businesses are also subject to income and employment tax rules. For a comprehensive explanation of how income from internet sales is taxed in California, contact us for a reduced-rate consultation or refer to the FAQ linked below.
See our Criminal Tax Law Q and A Library
What Tax Agency Conducts Internet Sales Tax Audits in California?
There are several tax agencies in California, each of which performs a different role. For example, the Franchise Tax Board (FTB) specifically administers state income tax laws. When it comes to enforcement of California sales and use tax, the corresponding agency is the California Department of Tax and Fee Administration (CDTFA), which now performs many of the tasks once assigned the Board of Equalization (BOE).
Why Might an Online Business Be Chosen for a California Sales Tax Audit?
Various issues could cause your online business to be chosen for an internet sales tax audit in California, from unfiled returns and underreported income to the volume of your sales. Unfortunately, the IRS takes a position that online businesses are frequently used to conceal income, inviting aggressive scrutiny – which often translates to increased risk of a federal or state tax audit.
During the audit, the CDTFA will examine your books and records exhaustively, comparing the sales you recorded against the sales you actually reported on your income and/or sales tax returns. You may appeal the results of the audit to the California Office of Tax Appeals (OTA), but only if you act within tight deadlines and correctly follow strict OTA procedures. We can prepare you for a sales tax audit, answer questions on your behalf throughout the examination, and if necessary, appeal the outcome if the results are inaccurate or improper.
Sacramento Online Sales Tax Lawyer + CPA for E-Commerce, Amazon Sellers, and Internet Businesses
Internet businesses face complex regulations – and harsh penalties for noncompliance, even if the errors are accidental. For a reduced-rate sales tax consultation with an experienced attorney-CPA in Sacramento, contact the Tax Law Office of David W. Klasing online, or call our Sacramento tax office at (916) 290-6625. Please note that appointments at our Sacramento office must be scheduled in advance.
California Internet Sales Tax FAQs
For additional information, refer to the following tax FAQs for online businesses in California:
- Can accepting credit cards at my e-business make the IRS think I’m committing fraud?
- Can an online business lead to offshore tax evasion concerns?
- Can my e-businesses’ referral or advertising agreements create tax problems?
- How can a California sales tax audit be dangerous for your online business?
- What sorts of questions does an IRS auditor ask online business owners?
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Will it cost me more to hire the Tax Law Offices of David W. Klasing, who’s main office and the vast majority of the firm’s staff is located in Irvine California, but an appointment only Satellite office is close to my location, as opposed to a local company? Absolutely not! See our policies that address this issue here:
