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There is no uniform federal sales tax law in the United States. However, if your business sells products in the state of California, you may be required to collect and remit sales tax to the California Department of Tax and Fee Administration (CDTFA), which administers the state’s sales and use tax laws. This requirement extends to both in-person and online transactions, impacting countless numbers of ecommerce companies and internet sellers.
Regardless of whether it is headquartered in or outside of California, your business can be swept up in the net of California’s complex sales tax requirements. If your company sells products online to customers in California, you should review your tax planning and compliance strategies with an experienced business tax lawyer in Santa Barbara. To discuss your business’ sales tax needs confidentially in a reduced-rate consultation, call the Tax Law Office of David W. Klasing in Santa Barbara at (805) 200-4053, or contact us online.See our Sales Tax Q and A library
Is There Tax on Internet Sales in California?
In short, yes. California belongs to a majority of U.S. states that collect sales taxes, the only exceptions being Alaska, Oregon, Montana, New Hampshire, and Delaware. If you sell “goods and merchandise” in the state of California – including sales you make online – you are likely required to collect and remit sales tax to state taxing authorities, unless a specific exemption applies. (For example, groceries and prescription medications are generally exempt from sales tax in California.) This requirement applies to both California and “foreign” (out-of-state) businesses, if nexus is established.
Do I Charge Sales Tax for Online Sales?
California enforces statewide sales and use tax laws that, with some exceptions, require businesses to collect and remit sales tax on most sales (defined here). This requirement applies not only to in-person transactions made at businesses with physical storefronts, but online sales by ecommerce businesses and online retailers. Like traditionally structured companies, online businesses are subject to sales tax in California – along with income and employment tax obligations.
What Creates Sales Tax Nexus in California?
If your business has financial connections to the state of California, it may have “economic nexus” and thus be responsible for California sales tax. What do we mean by “financial connections”? Here are a few examples of situations that can create sales tax nexus:
- Your business has a physical presence in California, such as a warehouse or department store in Santa Barbara.
- You are engaged in business in the state of California, subject to certain criteria. For instance, your online business may have “click-through” nexus if your California sales exceeded a threshold amount of sales depending on what you were selling (such as “tangible personal property”) and whether referrals were involved.
Having a sales team in California, or even attending trade shows or conventions in California, can also potentially establish nexus.
What Can Trigger a Sales Tax Audit of an Online Business?
There are various sales tax audit triggers for online businesses. Examples of violations or errors that increase the risk of auditing include:
- Delinquent returns (returns that were filed late)
- Failures to obtain, verify, or cancel California sellers permits
- Failures to register a business with the CDTFA
- Failures to remit sales tax to the state
- Having unfiled California tax returns
What Happens if My Brick and Mortar or Internet Business Doesn’t Pay Sales Tax in California?
You face myriad consequences if your business fails to meet its California sales tax obligations. For one, you are likely to be chosen for a CDTFA tax audit, where there is high potential for an auditor to determine that you owe the state additional taxes, interest, and/or penalties. More seriously, you may be placing yourself at risk for a criminal sales tax investigation, which carries with it a risk of criminal fines, jail time, supervised release, and the creation of a criminal record.
Santa Barbara Internet Sales Tax Lawyer for Ecommerce + Online Sellers
The online business tax attorneys at the Tax Law Office of David W. Klasing have extensive experience providing legal counsel, in addition to bookkeeping and accounting services, to California and out-of-state (“foreign”) corporations, LLCs, partnerships, sole proprietors, and freelancers. Whether your internet business requires California sales tax audit representation, CDTFA audit appeals representation, criminal tax defense representation relating to alleged sales tax fraud, or general counsel regarding sales tax compliance, we provide dedicated, 24-hour support.
To arrange a reduced-rate consultation, contact the Tax Law Office of David W. Klasing online, or call our Santa Barbara office at (805) 200-4053.
Please note meetings at our Santa Barbara location are by appointment only.
California Sales Tax FAQ for Internet Sellers + Small Business Owners
- Are California businesses subject to sales tax on sales to residents of foreign countries?
- How does the Wayfair decision affect sales tax compliance for online retailers?
- How is income from internet sales taxed?
- What are some common issues encountered during a sales tax audit?
- What sales tax records must I keep in California?
- What sorts of deductions make me a target for an online business tax audit?
- What sorts of questions do auditors ask online business owners?
- Why does the government think I am using my online business to conceal income?
- Why is a California sales tax audit your company’s biggest nightmare?
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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
