As promised, two California lawmakers have developed 2019 legislation that proposes requiring remote retailers to collect and remit state use taxes when they make $500,000 or more in annual sales into the state.
The bill, A.B. 147, was written in response to the U.S. Supreme Court’s June decision in South Dakota v. Wayfair Inc., which overturned the precedent barring states from requiring sellers with no physical in-state presence to collect sales and use tax.
The proposed $500,000 threshold — identical to an amount proposed in draft legislation last session — differs from the thresholds the California Department of Tax and Fee Administration (CDTFA) incorporated into its December 11 guidance for remote retailers in response to Wayfair. That guidance, which sellers must comply with beginning in April, requires use tax collection and remittance by remote retailers when they make $100,000 worth of annual sales into the state or 200 in-state sales per year — thresholds identical to those established by South Dakota in its remote sales tax law litigated in Wayfair.
The CDTFA guidance is authorized under the state’s existing “long arm” statute, which lets the state government seek sales tax compliance from retailers to the fullest extent allowed under the U.S. Constitution, without having to pass new legislation. However, Assembly Revenue and Taxation Committee chair Autumn Burke (D) and Senate Governance and Finance Committee chair Mike McGuire (D), who coauthored A.B. 147, argued in a December 10 press release that South Dakota’s thresholds won’t work for California, and that new, specific legislation will result in a better implementation of the state’s new authority to require use tax collection by remote sellers. Burke introduce the bill in the Assembly on December 14.
As suggested in the lawmakers' previous announcement, the bill also seeks to require online marketplaces to collect and remit use taxes on their third-party sellers’ sales into the state. It would also require remote retailers to automatically collect and remit local use taxes on their sales when they meet the $500,000 annual in-state sales threshold. The CDTFA’s rules under the current law hold that remote sellers are required to collect local use tax levies only when their sales into a given locality meet or exceed the $100,000 or 200 annual in-state sales thresholds.
A.B. 147 would also reduce the current $1 million sales threshold to establish click-through nexus. Under the bill, a remote retailer that contracts with in-state entities to directly or indirectly refer purchasers to the retailer would be deemed to be engaged in business in California when it has $500,000 in annual in-state sales.
The legislation includes an urgency clause to allow it to take effect immediately once approved.