Being updated about the tax changes is very much necessary as it helps you to file taxes with ease and without any trouble. Every year, there are several changes made in the tax laws and you need to know all of them in order to avoid the hassle during the tax season.
You might be thinking it as an April fool’s prank, but you need to know that the California Legislature might alter its sales tax collection requirement. So let’s see what may happen with the California Sales tax change 2019 and how it can affect your tax planning.
From 1ST April, all the out of states that are currently doing business in California have to collect their sales taxes on their Californian transaction. Similarly, all the in-state retailers who are dealing in businesses in those districts where they have no physical existence also have to start collecting those district taxes.
So, the current change in the Californian Sales tax change will affect both in-state and out of state sellers. Both the in state and out of state sellers will have to collect an additional district tax in addition to the sales tax in the current or proceeding calendar year but only if the seller’s sales in that district is more than $100,00 sales/ 200 transaction threshold.
But it is also important to notice that according to the explanation of California Department of Tax and Fee Administration (CDTFA), these changes in the sales tax rule will not lead to a tax increase or any type of new tax. The CDTFA is just enforcing the already implemented sales and tax laws that are permitted by South Dakota v. Wayfair, Inc. the June 21, 2018. ruling implemented by the Supreme Court of the U.S
Before the Wayfair ruling, all the states were restricted from implementing a sales tax collection on all those businesses that don’t have any physical existence in the state. Later the Supreme Court found this restriction of sales tax due to physical existence to be improper and that’s why it proposed that along with the physical appearance, the sales tax obligation can be established by economic and virtual contacts of the state.
So, from 1st April 2019, if there is an out-of-state seller who is fitting in the below-mentioned threshold in the current or previous calendar year will be required to register with California Department of Tax and Fee Administration and start collecting sales taxes:
If there is an out-of-state seller who meets these thresholds in one or districts, even then he will have to collect the district taxes which are handled by CDTFA. Along with that, even if an out-of-state seller is not meeting the above-mentioned thresholds, still they can collect the applicable taxes voluntarily for their customers.
If you are thinking that the new policy of the California Sales tax will affect only out-of-state sellers then you are completely wrong. This new policy will affect the in-state sellers as well. According to the previous policy, all the in-state businesses are supposed to collect only the taxes which are in common with the Californian consumer which means that if Los Angeles located business collects the taxes made on the sales to the consumer in San Francisco but not the district taxes.
But from 1st April 2019, all the in-state sellers who will meet the below-mentioned thresholds in different districts in the current or previous calendar year must collect sales taxes”
And just like the out-of-state sellers, even the in-state seller can voluntarily collect these taxes for their consumers even if they don’t fit in the above-mentioned threshold.
So, it doesn’t matter whether you are an in-state seller or an out-state seller, you should check your number of transactions and the total amount of sell in order to find that whether you fall into the new policy of the tax rules implemented by the CDTFA or not. The new policy wipes out the restriction of physical existence in the state imposes tax collection on the basis of sales transaction and sales amount. Don’t be in the dilemma that without any physical existence, you will not be liable to collect city or district’s taxes.