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There is no federal sales tax requirement that is uniformly enforced throughout the United States. Instead, each state implements its own rules, creating a labyrinthine patchwork of regulations for businesses to navigate. California sales and use tax laws are enforced aggressively by the California Department of Tax and Fee Administration (CDTFA), which has assumed many of the BOE’s prior functions. The CDTFA, which shares information with agencies like the IRS and Franchise Tax Board (FTB), monitors returns filed by online businesses to assess their compliance with California’s sales tax laws. If your internet business stores products, sells products equating to enough economic contact, has physical presence, employs workers in the state of California, you may be responsible for collecting and depositing sales tax with the state; specifically, with the CDTFA.
See our Sales Tax Q and A library
While some exceptions apply to California’s sales tax rules, thousands of local and out-of-state retailers remain affected – and failures to comply can lead to expensive assessments of tax penalties and interest. In light of the legal and financial fallout that can result from a California sales tax audit, it is wise to evaluate your online business’ tax plan with an experienced sales tax attorney in Bakersfield. At the Tax Law Office of David W. Klasing, we are Bakersfield tax attorneys & CPAs who combine decades of tax and accounting experience serving corporations, LLCs, partnerships, sole proprietorships, nonprofit organizations, startups, and independent contractors. If you have questions about a sales tax issue in California, or if you are in need of skilled tax audit representation in CDTFA proceedings, our online business tax attorneys are standing by 24/7 to help.
Do Online Retailers Pay Sales Tax in California?
The answer to this question depends on whether the online business has “nexus” with the state of California, in which case the business is generally required to collect and remit sales tax. Nexus may exist if:
- The business has engaged in a certain minimum number of transactions in the state of California.
- The business’ California transactions exceed a certain value in aggregate.
- The business stores or warehouses goods in the state of California.
- The business has physical contact / employs workers in the state of California.
The newest form of nexus is economic nexus with the state. However, as mentioned above, some exceptions to the rules around nexus may apply. For example, certain out-of-state retailers (such as Amazon sellers) may be exempt from California’s sales tax rules during specific periods, resulting in relief from CDTFA penalties, if their only connection to California was the use of a “marketplace facilitator” (such as Amazon) to store products. However, in order to belong in this category, the business must have filed taxes and registered with the CDTFA prior to September 25, 2019. For more information about how nexus affects online businesses and their sales tax responsibilities, see our article discussing how the Supreme Court’s Wayfair ruling changed sales and use tax compliance, or simply contact our Bakersfield tax compliance attorneys for an in-depth consultation.
On a related note, it is worth pointing out that certain products are automatically exempt from California’s sales tax rules, such as groceries and medical items. Online retailers are not responsible for collecting or remitting sales tax on these or other exempt products.
CDTFA Sales Tax Audit Lawyers for E-Commerce and Online Companies
Just as the Franchise Tax Board audits business and personal income tax returns, the CDTFA audits sales and use tax returns (Forms CDTFA-401-A) for errors and discrepancies. The CDTFA compares business’ tax records against information culled from bank statements, out-of-state tax filings, and other financial records to determine whether sales tax is being calculated, collected, and remitted properly.
Depending on what sorts of issues are under examination, the CDTFA may ask you questions about gross receipts, industrial equipment, commercial leases, the deductions you claimed, the sales tax rates you used, and other aspects of your tax returns. The audit will conclude with an “exit conference,” at which the CDTFA explains its findings. These findings will later be transmitted in writing via either a “Notice of Refund” or a “Notice of Determination,” which is a notice that you owe the CDTFA unpaid sales taxes.
If you disagree with the outcome of a CDTFA sales tax audit, you may contest (appeal) the findings by submitting a written protest, or “opening brief,” which contains your factual and legal explanation of the issues at hand and your basis for disputing them. As we wrote about here, the CDTFA recently released on a guide on taxpayers’ appeal rights.
Bakersfield, CA Sales Tax Lawyers + CPAs for Internet Businesses
Online businesses face complex regulations concerning sales and use tax in California. Let a knowledgeable attorney provide clarity and confidence, so that you can focus your energy on running your company – not interpreting tax statutes. To arrange a reduced-rate sales tax consultation, contact the Tax Law Office of David W. Klasing online, or call our Bakersfield tax office at (661) 432-1480.
Please note all meetings at our Bakersfield location must be scheduled in advance.
Note: If you have concerns about the privacy of our initial or subsequent communication and are unable to easily travel to our Irvine / Orange County Main Office, consider scheduling a GoToMeeting to safely and securely establish an initial or maintain an existing attorney client relationship. With end-to-end encryption, strong passwords and top-rated reliability, no one is messing with your meeting. To schedule a reduced rate initial consultation via GoToMeeting follow this link. Call our office and request a GoToMeeting if you are an existing client. We are generally happy to travel to any of our appointment only satellite offices for a subsequent meeting in appropriate circumstances once a relationship is established via a signed engagement letter and the payment of an initial retainer or where enough retainer is available where a current client to cover the reasonable travel time and time required for the meeting.
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.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
