Los Angeles California Tax Attorney Blog

OUT-OF-STATE SELLERS:
DO YOU NEED TO REGISTER WITH CALIFORNIA STATE BOARD OF EQUALIZATION FOR SALES AND USE TAX?

State of California taxes are governed by the following entities:
California BOE Sales Tax
California Income Tax Franchise Tax Board FTB
California EDD Payroll or Employment Tax

As a follow up to previous article on "OUT-OF-STATE SELLERS:
DO YOU NEED TO REGISTER WITH CALIFORNIA STATE BOARD OF EQUALIZATION FOR SALES AND USE TAX?", the following are some examples of situations that REQUIRE CALIFORNIA SALES OR USE TAX REGISTRATION.

Stocks of merchandise:
If you make sales both in and outside of California, at least one permit must be held when you maintain stocks of merchandise in this state. You are also required to hold permits for warehouses or other places in California where merchandise is stored or delivered from, or from which sales are fulfilled in this state. This is true even if the merchandise is used to fulfill your sales made outside California.

Sales representatives
You have a representative who operates under your authority to sell or take orders in California for any goods or merchandise.
Example: Your company does not have inventory in California or employees who sell in this state. Instead, you use an independent representative who sells your product along with many others. The representative works on a commission-only basis.

Installations
You provide installation in California using your own employees or contractors. Revenue and Taxation Code section 6203(c)(2).
Example: You maintain a single facility in Arizona where you design and sell computer systems. All of your sales are made by mail order or over the Internet. On request, you will send employees to California to install the equipment for your customer.

Training
You provide training services in California related to a specific sale of goods or merchandise.
Example: Your Virginia-based business does not have sales representatives or inventory in California. However, one of your customer service representatives routinely comes to California to provide training on the computer software you sell on CD-ROM.

Leasing
You receive payments from the lease of equipment or merchandise located in California and you have not already paid California sales or use tax on the purchase of that equipment or merchandise.
Example: Your Nevada car dealership leases cars to California residents who drive them in this state. You have no other business connection to California.

OUT-OF-STATE SELLERS:
DO YOU NEED TO REGISTER WITH CALIFORNIA STATE BOARD OF EQUALIZATION FOR SALES AND USE TAX?

State of California taxes are governed by the following entities:
California BOE Sales Tax
California Income Tax Franchise Tax Board FTB
California EDD Payroll or Employment Tax

Many companies who are not physically present in California are often bewildered when they receive sales tax notice or sales tax audit letter from California California BOE Sales Tax . These companies often ask: Do I need to collect California sales and use tax when my business is located outside the state?

That depends. Retailers based outside California are required to pay California sales or use tax on sales of merchandise to California customers if they are “engaged in business” in the state and must register to pay sales and/or use tax.

Am I engaged in business in California?

You are engaged in business in California if situation 1, 2, or 3 applies to your operations.

1. Business location in CaliforniaYou have a permanent or temporary office, distribution center, sales or sample room, warehouse, or other physical place of business in California.

2. Representative in CaliforniaYour business does not have a physical location in California, but you have a representative in the state who makes sales, takes orders, installs merchandise, trains customers, or makes deliveries.

3. Leases of property in CaliforniaYou receive rental payments from the lease of tangible personal property that is located in California.

If situation 4 or 5 applies to your operations, you generally are not required to register to pay California sales or use tax.

4. Trade showsYou are physically present in California only

•To engage in convention and trade show activities for not more than 15 days during any 12 month period,

AND

• During the prior calendar year, you did not earn more than $100,000 of net income from those activities in this state.

However, if you sell any merchandise at a trade show, or take orders for merchandise delivered later to California customers, you must collect and remit use tax on those sales even though you’re not required to hold an ongoing permit.

5. Shipping by Common Carrier
Your only connection with California is to ship products to customers by U.S. Mail or other common carrier.

Please note that the descriptions herein are general in nature and should not be considered a complete guide to your sales tax analysis. Los Angeles Tax Attorney: Victor J. Yoo