The Complete Guide to California Economic Nexus Law for Out-of-State Businesses

Explore California's economic nexus law and safeguard your business from potential pitfalls. Understand the thresholds, compliance obligations, and consequences for out-of-state businesses.

If your business sells products across different states, you might need to adhere to California's sales tax regulations by collecting and remitting taxes. The reason for this is California's economic nexus law, which mandates out-of-state businesses to collect and remit sales tax if they surpass specific sales thresholds. In this article, we will delve into the details of this legislation and outline the nexus thresholds that apply in California. Familiarizing yourself with these regulations will enable you to ensure compliance with the state's sales tax obligations. And should you require further clarification, our team of professionals is readily available to assist you!

California Economic Nexus

What is California’s Economic Nexus Threshold?

Out-of-state businesses conducting sales in California must adhere to California's economic nexus law, which mandates the collection and payment of sales tax for sales exceeding $500,000 during the current or previous calendar year. Failing to abide by this law can lead to potential consequences such as retroactive taxes, penalties, or fines. Therefore, businesses operating outside of California and selling to customers within the state must carefully monitor their sales volume to ensure compliance. Seeking guidance from sales tax specialists, such as Galvix, is crucial in navigating California's economic nexus obligations effectively.

When Did California’s Economic Nexus Law Go Into Effect?

The implementation of California's Economic Nexus Law has impacted out-of-state businesses since April 1, 2019. As a result, if your business surpasses California's economic nexus threshold after that date, obtaining a sales tax permit is imperative.

However, if your business exceeded California's economic nexus threshold before April 1, 2019, you must enroll for a sales tax license in California starting from the law's effective date in April 2019. It is crucial to consider other factors, including physical presence when determining the appropriate start date for your sales tax permit in California.

What Are Businesses Supposed to Do if They Meet California’s Economic Nexus Threshold?

Companies that satisfy California's economic nexus threshold must enroll for a sales tax permit and commence the collection and remittance of sales tax. This implies that the company must officially register with California and maintain state-taxable sales records. Additionally, they need to configure their transaction platforms to compute sales tax precisely according to the items being sold. Subsequently, businesses must remain well-informed regarding any forthcoming alterations to filing guidelines.

By when does a business need to get a sales tax permit after crossing California’s Economic Nexus Threshold?

Companies that surpass the economic nexus criteria in California are obligated to promptly apply for a sales tax permit before their subsequent transaction takes place.

What Could Happen if I Cross California’s Economic Nexus Threshold and Don’t Get a Sales Tax Permit?

As an out-of-state enterprise surpassing California's economic nexus criteria without obtaining a sales tax permit, you put yourself at risk of undergoing audits, penalties, and interest charges. These audits aim to assess whether there are any outstanding tax obligations during the preceding period, with penalties imposed corresponding to the unpaid amount. Additionally, any unpaid taxes or late filings will accumulate interest at the state-designated rate.

Getting Help with California’s Economic Nexus Requirements

If your business surpasses the economic nexus criteria in California, you must acquire a sales tax permit and handle the collection and remittance of sales taxes for all taxable sales made in the state. Galvix is here to guide you in determining whether your business satisfies California's economic nexus thresholds. If it does, we can assist you in obtaining a sales tax permit. Avail of our complimentary initial consultation to gain insight into your sales tax responsibilities in California. Find out more and book your free consultation by clicking here.

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