A Wisconsin-based online boutique ships hand-crafted jewelry to customers nationwide. A Florida health-food company fulfills thousands of monthly orders through its e-commerce store. Do either of these businesses owe sales tax to the State of California? In the post-Wayfair world, the answer is often yes—even if the retailer has never set foot inside the Golden State. Understanding California’s remote-seller rules can mean the difference between seamless compliance and an unexpected, budget-busting assessment. If you believe that you may have a compliance issue related to California sales tax, you should consider consulting with an experienced California sales tax audit attorney.
Wayfair and Economic Nexus
In 2018, the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. upended the “physical presence” standard that had shielded many out-of-state retailers from collecting sales tax. States—including California—quickly enacted “economic nexus” statutes. Under California’s rules (Cal. Rev. & Tax. Code §§ 6203 and 7262), a retailer must register, collect, and remit sales tax if, during the current or previous calendar year, it:
- Exceeds $500,000 in sales of tangible personal property for delivery into California, or
- Operates through a marketplace facilitator that itself exceeds the threshold.
Once you cross that threshold, your obligation starts the very next transaction. Importantly, there is no small-seller exception below $500,000 if you sell through a marketplace facilitator; the facilitator assumes collection duties, but you still must ensure your marketplace properly remits tax and complies with California’s item-category sourcing rules.
Marketplace Facilitators
California treats Amazon, eBay, and similar platforms as “marketplace facilitators.” When a facilitator collects tax on your behalf, you generally do not separately register. However, you remain liable if the facilitator misclassifies products, under-collects, or fails to remit. For direct-to-consumer website sales, economic nexus falls squarely on your shoulders once you eclipse $500,000.
Local District Taxes
California’s sales-and-use tax rate is a combination of the statewide base (currently 7.25 percent) plus local district taxes that vary by city and county. Remote sellers must charge the district use tax applicable to the purchaser’s destination address, which can be a logistical headache if your sales software isn’t configured for accurate rate tables. Mis-sourcing can result in under-collection, penalties, or over-collection (which invites class-action risk, potentially an even bigger headache).
Registration and Filing
Retailers meeting economic nexus must:
- Register with the California Department of Tax and Fee Administration (CDTFA) – a process that can be completed online.
- Begin collecting tax on taxable sales shipped to California addresses.
- File returns monthly, quarterly, or annually depending on sales volume.
- Remit tax electronically by the due date to avoid late-payment penalties (generally 10 percent of tax due plus interest).
Pro Tip: Almost universally across the U.S. various state sales tax registration questions attempt to identify exactly when you should have started collecting and remitting sales tax. If you use a service like tax jar to collect & remit in all states with which you have economic nexus and to apply for the appropriate state sales tax registrations, you could be opening a can of worms as to liability in prior years. Many states have voluntary disclosure programs that can limit your exposure when attempting to get back into compliance. Moreover, while Wayfair was a sales tax case, most states in the union will start to look for income tax returns once you start filing sales tax returns. California for example has a single factor for multistate income tax apportionment, sales within California.
Exempt Products and Documentation
California exempts some items (e.g., certain groceries) and offers partial exemptions (e.g., manufacturing equipment). If you sell mixed product lines, proper mapping is critical. For resale transactions, you must obtain California Resale Certificates from buyers. Failing to secure and retain certificates shifts any sales tax liability to you.
Common Pitfalls for Out-of-State Retailers
- Ignoring Prior-Year Sales – The $500,000 threshold looks at either the current or prior calendar year. A strong Q4 can trigger nexus January 1.
- Relying Solely on Marketplaces – If 70 percent of sales are through Amazon (facilitator collects) but 30 percent through your own site, that 30 percent is still your responsibility once total California sales exceed $500,000.
- Neglecting Local Taxes – Some remote-seller platforms apply only statewide rates. You must ensure proper district rates.
- Failure to Amend – Businesses sometimes register late but neglect to file past-due returns, leaving exposure for penalties up to 25 percent of tax due and interest dating back to the liability period.
Voluntary Disclosure
For retailers who discover past California nexus, it is often wiser to approach the CDTFA before it approaches you. California’s voluntary disclosure program can limit lookback periods and reduce penalties. Each case is facts-specific, so consult counsel before contacting the CDTFA.
Non-California State Requirements
While this post focuses on California, 45 states plus the District of Columbia have economic-nexus laws. Thresholds vary: $100,000 in Colorado, $250,000 in Texas, and as low as $100,000 or 200 transactions in many jurisdictions. A comprehensive nexus study guards against whack-a-mole compliance surprises.
Why Professional Help Matters
The patchwork of state rules is challenging. At the Tax Law Offices of David W. Klasing, we can:
- Negotiate California voluntary-disclosure agreements when needed, and
- Represent clients in California audits, whether sampling is used or not, to try to limit liability and eliminate double-taxation risks.
Our dually licensed Tax Attorney-CPA understands both the constitutional framework after Wayfair and the day-to-day operational realities of e-commerce sellers. We translate complex regulations into practical steps, so you can focus on growth, not tax turmoil.
Conclusion
California’s economic-nexus threshold pulls many out-of-state retailers into its sales-tax regime. The key is to monitor sales data closely, register promptly once you cross the line, and implement systems that apply the correct statewide and district rates. Missteps can be costly, but proactive compliance and experienced guidance keeps headaches to a minimum.
If your business ships goods into California and you’re unsure about your sales-tax responsibilities, contact the Tax Law Offices of David W. Klasing. We’ll help you determine whether you have nexus, guide you through registration, and establish a compliance process that supports sustainable growth nationwide.
