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If you own an online business or sell products online in the state of California, you may be responsible for collecting and remitting California sales tax. This is due to a recent Supreme Court ruling, which found that internet businesses should be held to the same sales tax regulations as physical storefronts. As a result, the state of California is increasing sales tax audits to ensure that internet businesses are complying with the new regulations.
If you have any questions, no matter how minor, regarding compliance with California internet sales tax laws, now is the time to review the issue with an online business tax attorney serving San Jose. Doing so could save you from a California sales tax audit – or even a criminal sales tax investigation. For internet sales tax help, contact the Tax Law Office of David W. Klasing online, or call our San Jose office at (805) 617-4566 to set up a reduced-rate consultation. Please note all meetings at our San Jose tax office must be scheduled in advance.
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Are Internet Transactions Taxed in California?
In short, yes. For sales tax purposes, a “sale” is simply any exchange of goods for money, regardless of whether such an exchange takes place at a physical shop or in a virtual storefront. Online transactions, like real-world transactions, are generally subject to California sales tax unless a specific exemption applies. For instance, prescription drugs are generally exempt from sales tax in California. Note that, in addition to being responsible for sales tax, your online business may also have employment and income tax obligations.
For more information about how internet transactions are taxed in California, refer to our internet and online business FAQ library, or contact our internet sales tax attorneys for assistance.
Does Your Online Business Have Economic Nexus with California?
You may be responsible for California sales tax if you are a local business or if you have an “economic nexus” with the state, which is simply another way of saying that you have economic ties to the state of California. For example, you may have nexus if your business has a physical location in California (such as a store or warehouse), employs workers or salespeople in California, or makes sales in California that exceed certain thresholds.
Who Performs Sales Tax Audits in California?
When most people think of audits, they imagine the IRS. However, the Internal Revenue Service only audits federal returns. Sales tax is a state tax that is governed by California’s tax code. California sales tax audits are performed not by the IRS, but by the California Department of Tax and Fee Administration (CDTFA), with which all California retailers must be registered. If you do business in California and have failed to register with the CDTFA, contact our San Jose tax attorneys for assistance.
The CDTFA may focus on various issues and questions during a sales tax audit, notably the deductions you claimed, the gross receipts you reported, the business expenses you reported, and how you allocated local taxes. The auditor’s exact area of focus will depend on why your business is being audited and which documents are missing, inaccurate, or delinquent.
Can You Appeal the Results of a CDTFA Sales Tax Audit?
Even if you thought you were compliant, a California sales tax audit can become your worst nightmare if errors are discovered – or if the auditor makes a mistake. Fortunately, in the latter instance, it may be possible to appeal. State tax appeals are heard by the Office of Tax Appeals (OTA), which now performs most of the duties once assigned by the California Board of Equalization (BOE).
See our Criminal Tax Law Q and A Library
To appeal the results of a sales tax audit, the taxpayer must submit certain documentation to the OTA within a specified time period, including copies of CDTFA correspondence, the factual and legal reasoning why he or she is disputing the results of the audit, and the taxpayer’s contact information. A sales tax audit attorney can assist you with the appeals process and increase your likelihood of achieving a favorable outcome.
San Jose, CA Internet Sales Tax Lawyers and CPAs for E-Commerce Companies
Internet sales tax compliance can be a legal and financial minefield for e-commerce businesses. Don’t risk subjecting your business to unnecessary fines, penalties, interest charges, tax audits, or criminal investigations. Get cutting-edge tax and legal advice from a team of award-winning Internet Business Tax Lawyers & CPAs combining over 30 years of experience. Contact us online right away to arrange a reduced rate appointment or call the Tax Law Office of David W. Klasing at (805) 617-4566. Our tax attorneys serve businesses throughout the San Jose County region and across California.
Online Sales Tax FAQ
You may find the following FAQs helpful if you own an online business that sells products in the state of California:
- How Does the Supreme Court’s Wayfair Ruling Change Sales and Use Tax Compliance?
- How is California Sales and Use Tax Enforced?
- How is Income from Direct Internet Sales Taxed?
- What Are Some Common Issues Encountered During Sales Tax Audits in California?
- What Do You Do if You Owe Sales Tax in California?
