As a business, do I need to collect California sales tax?
Businesses are required to collect sales tax in California if they have a sales tax nexus in the state. This includes having a physical presence or reaching a specific sales level, which establishes an economic nexus. This is why understanding California state sales tax obligations is crucial for compliance.
Do I have a physical nexus in California?
A physical nexus in the state of California is established if your business has a physical presence in the state. Following are examples of physical presence that can trigger a physical nexus in the state of California:
- Contractors (customer facing roles): "Contractors" are usually considered independent entities or individuals. They operate their own businesses and are not typically under the direct control of the hiring company. The presence of contractors engaged in customer-facing roles, such as marketing, sales, support, or servicing, usually triggers a physical nexus in the state.
- Employees (customer facing roles): In the context of establishing a physical nexus, "employees" refer to individuals who work for your business and are physically present in the respective state. Employees engaged in customer-facing roles, such as marketing, sales, support, or servicing, usually trigger a physical nexus in this state.
- Office: An "office" in the context of establishing a physical nexus refers to a physical location or workspace that a business maintains within the respective state. This could include a dedicated facility where administrative tasks are carried out, meetings are conducted, or business operations are managed.
- Warehouse: A "warehouse" in the context of establishing a physical nexus refers to a physical facility used for storing goods, inventory, or products within the respective state. Businesses may utilize warehouses for various purposes, such as storage, distribution, or fulfillment of orders.
How do I know if I have an economic nexus in California?
An economic nexus in California is determined by your sales volume. If the annual sales of your enterprise exceed the given threshold in California, you must register for an California sales tax permit, collect tax on sales shipped to California, and remit that sales tax to the state revenue authorities.
In California, an economic nexus is established for your enterprise if your sales in the state exceed 500000 based on the sales from the Current or Previous Calendar Year.
While calculating the sales or number of transactions for determining economic nexus, California requires transactions made through marketplaces, like Amazon, eBay, etc. to be included. Transactions made for resale purposes should be included while determining whether a business has exceeded the California economic nexus threshold. Finally, the sale of products that are non-taxable in California should be included while determining the establishing of nexus in California.
For an in-depth understanding, read our comprehensive guide on economic nexus reference periods.
Which goods are taxable in California?
For businesses in California, local sales tax is applicable on the sale of all tangible personal property sold at retail in the state. Services are typically not subject to taxation. However, if the service you offer involves the creation or manufacturing of a physical item, you may be required to address sales tax obligations related to those products.
Businesses need to stay updated on current tax information as well as the associated obligations and exemptions to avoid any compliance issues.
What items are exempt from California sales tax?
California exempts several items from sales tax- prescription medicine and certain medical devices, specific food products intended for human consumption, sales made to the U.S. Government, items purchased with EBT (Electronic Benefit Transfer) cards, to name a few.
Understanding these exemptions is vital for businesses to calculate sales tax accurately in California. If you are uncertain about the tax status of specific items, seek guidance from professionals at Galvix.
Is SaaS taxable in California?
In California, the sales tax laws consider certain types of software, SaaS, and related services as taxable. These include:
- Software delivered on tangible media: Software distributed and obtained through physical means, such as CDs or DVDs.
- SaaS - On premises: This refers to Software as a Service installed and operated from the customer's in-house server and computing infrastructure rather than a third-party server.
However, sales tax laws change frequently, so it is vital to remain up-to-date with the latest regulations on the sales tax of California for digital goods. Checkout our latest blog to learn more about SaaS sales tax.
What is the deadline to obtain a California sales tax permit after establishing a nexus?
If a business has a physical nexus in California, it must obtain a sales tax permit from the California Department of Tax and Fee Administration and start collecting sales tax on transactions as on the date of establishing the physical nexus. Businesses that establish an economic nexus in California need to obtain a sales tax permit and start collecting taxes, latest by next transaction, from the date they establish the economic nexus.
It is important to obtain the sales tax permit and start collecting taxes as per the deadlines mentioned above, in order to avoid back taxes and penalties.
How can one get a California sales tax permit?
To obtain a sales tax permit in California, businesses need to register with the California Department of Tax and Fee Administration. This process is streamlined and can be completed online through the online portal provided by California Department of Tax and Fee Administration. To comply with California's sales tax laws, businesses need to get a tax permit.
To get a sales tax permit in California, you need to provide detailed information about the business, such as the type of business, FEIN, personal details of the owner, business registration, nature of business activities, and several others on the California Department of Tax and Fee Administration website. You will then get a sales tax number. This number is important for collecting, reporting, and paying the sales tax to the state government.
For detailed instructions and guidance on the registration process, connect with the experts at Galvix.
How should a business collect sales tax in California?
Businesses in California must collect sales tax from customers on relevant transactions. The collected tax must align with the California sales tax rate, which varies by location. Enterprises should regularly verify the sales tax rates to ensure accurate collection. To learn the best practices, explore our sales tax compliance guide.
Where can I file my California sales tax return?
You can file the California sales tax return by visiting the online portal provided by the California Department of Tax and Fee Administration at: https://onlineservices.cdtfa.ca.gov/_/.
When should a business file California sales tax return?
Businesses in California must file state sales tax returns periodically. The frequency, i.e., monthly, quarterly, or annually, is determined by the state based on the tax liability.
Typically, sales tax and use taxes is due monthly, with returns and remittances filed on or before the last day of the following month for the previous month’s sales. However, businesses can request a different filing status based on their annual tax liability.
In general, the following are the filing deadlines for California, based on the assigned filing frequency to you by the state:
- Monthly Filing: last day of the following month
- Quarterly Filing: last day of the following month after quarter end
- Yearly Filing: last day of the following month after year end
It’s crucial to adhere to the assigned schedule to avoid penalties.
How does California determine the sales tax filing frequency for my business?
The California Department of Tax and Fee Administration will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently.
Are there any benefits if a business files California sales tax on time?
Numerous states promote the prompt or early submission of sales and use tax returns by offering timely filing discounts or incentives.
However, it's worth noting that as of now, the California Department of Tax and Fee Administration does not provide any discount or incentive to sales tax filers.
What penalty is applicable if a business fails to file California sales tax?
Penalties are applicable if a business fails to file and pay sales tax before the due date in California. A 10 percent penalty is enforced for failure to file your tax return by the due date. Similarly, a 10 percent penalty is applied if your tax payment is overdue. Should both your return and payment be tardy, the combined penalty will not surpass 10 percent of the tax due for the reporting period.
In the event of a late return or late payment, interest charges will also be incurred, in addition to penalty charges. Interest accrues for each month or fraction of a month the tax return or the tax payment remains outstanding. More details about this can be found here.
What are the key things to remember while filing sales tax in California?
While filing taxes in California, businesses must remember to account for sales tax holidays and potential tax discounts. Sales tax holidays offer temporary tax exemptions on specific items, and tax discounts may be available for timely filings during the reporting period. Staying updated on these can maximize compliance efficiency.
What is the sales tax on shipping in California?
In California, shipping charges are generally exempt from sales tax if the sale itself is exempt. However, if the sale is taxable, the taxability of delivery-related charges can vary. Such charges may be nontaxable, partially taxable, or fully taxable, depending on the specifics of the transaction. For example, shipping charges for a taxable product are non-taxable when done via a common carrier. The tax rate aligns with the California state sales tax rate applicable to the goods sold. Businesses should levy sales tax on shipping accurately for compliance. More details about this can be found here.