MEDIA RESOURCE: New Use Tax Requirements for Out-of-State Retailers
What changed for retailers?
In 2011, legislation was enacted (AB 155, Ch. 313, Stat. 2011) that expanded the definition of a "retailer engaged in business in this state" and therefore, expanded the number of businesses that have to collect and remit taxes to BOE. The law became effective September 15, 2012.
Online and other retailers that do not have a direct physical presence in California are required to register with BOE (eReg), report and collect use tax if the retailer has:
- More than $10,000 in sales to California customers through referral from California-based affiliates, and,
- Sold more than $1 million in tangible personal property to California consumers in the past 12 months.
What did not change?
Only retailers that met the criteria were covered by this change. If the retailer was already registered with the BOE or was not covered by the provisions specified, they were not affected.
What was the purpose of the change?
Requiring out-of-state retailers engaged in business in this state to collect use tax levels the playing field for all businesses by treating them the same way California retailers are treated.
Consumers will pay use tax to the retailer at the time of purchase rather than paying it on their income tax forms or separately to the BOE using eReg.
Consumers and business were required to keep track of their out-of-state purchases and pay use tax on their own. But, many consumers and business did not pay use tax, creating a tax gap – the difference between the amount of tax that is owed and the amount that is not paid.
What happens when retailers do not comply?
In the case that a retailer does not comply with the out-of-state staff, normal BOE collection procedures apply:
- BOE will provide a letter to the retailer indicating why they have nexus.
- BOE will indicate that corporate officers may be liable for unpaid taxes.
- In rare cases, BOE will prepare a forced registration and an estimated billing.
How did BOE prepare?
BOE sent letters to more than 200 out-of-state businesses that may be required to register, report, and collect use tax. However, BOE can not disclose the names of those businesses because by law, it would violate taxpayer confidentiality.
Currently, the BOE has a workforce of more than 4,000 employees who administer many tax and fee programs throughout the State of California.
BOE will receive a number of positions to help administer this new law:
- FY 12-13 BOE will have a total of 28.3 positions
- FY 13-14 BOE will add an additional 2.4 positions, bringing the total to 30.7
- FY 14-15 BOE will add an additional 4.4 positions, bringing the total to 35.1
What changed for consumers?
Consumers will now see a use tax or point-of-sale charge when buying online from out-of-state retailers that have a nexus in California. Consumers who are charged tax at the point of sale, no longer have to self-report use tax.
If purchases are made from an out-of-state retailer that is not registered to collect the tax, the purchaser is still required to report the use tax. The purchaser may report and pay use tax to the BOE using the convenient, fast, and free electronic registration system (eReg), or report/pay to the Franchise Tax Board (FTB) when filing an annual State Income Tax Return. As part of reporting use tax on the State Income Tax Return, the purchaser may also choose to use the Use Tax Lookup Table.
- Sales and Use Tax Regulation 1684, Collection of Use Tax by Retailers
- New Use Tax Collection Requirements for Out-of-State Retailers Operative September 15, 2012 – Frequently Asked Questions
- Special Notice: New Use Tax Collection Requirements for Out-of-State Retailers Operative September 15, 2012