On May 23, 2019, the California Department of Tax and Fee Administration (DTFA) held an interested parties meeting to discuss proposed amendments to the sales and use tax regulations related to the recently enacted California remote seller sales and use tax legislation. Under the new law, out-of-state retailers and related parties making more than $500,000 from total combined sales of tangible personal property for delivery into California in the preceding or current calendar year will be required to collect and remit sales and use tax effective April 1, 2019. Retailers will be required to collect local district tax based on the tax rate in the destination district, regardless of the level of activity within each district.
Under the proposed amendments, sections 1684 and 1827, title 18 of the California Code of Regulations would be revised to interpret and apply the new sales and use tax nexus standard and include several important clarifications. For example, the draft regulations provide that the collection requirement begins to apply to the first sale after the sale that exceeds the $500,000 threshold. The draft regulations include a one-year trailing nexus period, which is an expansion of the two-quarter trailing nexus period that the DTFA previously asserted based on administrative guidance. At the meeting, the DTFA stated that it intended to apply the new trailing nexus standard prospectively and would not seek to extend the trailing nexus period from two quarters to one year for sellers that properly closed their registrations prior to April 1, 2019.
The draft regulations also provide that a seller that was previously required to be registered based on either physical presence or meeting the sales threshold, but which no longer has a physical presence, did not exceed the $500,000 threshold in the preceding calendar year, and does not anticipate exceeding the sales threshold in the current calendar year, may choose to either voluntarily maintain their registration to collect and remit tax or close their registration and stop collecting tax after the registration certificate is closed.
The DTFA plans to begin drafting proposed regulations related to the newly enacted marketplace facilitator requirements, which become effective on October 1, 2019, in the near future. Out-of-state retailers should continue to track the DTFA's regulatory process related to the California remote seller and marketplace facilitator provisions.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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