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California sales taxes can be tricky for online sellers

Life would be much simpler if we could just say that online sellers need to understand sales taxes and consumers need to understand use taxes. In some ways, it's true. As we explained in our last post, though, consumers really have to be aware of the laws about both. Why? Because if the seller does not collect sales tax (on a taxable purchase), the consumer must pay a use tax. However, California also refers to a tax collected by out-of-state sellers as a use tax, not a sales tax. It's tricky.

Do not think for a minute, though, that this makes it easier on sellers. California has changed its rules about online sellers, and sellers have to jump through a few hoops to comply with the law.

For the time being, let's focus on taxable purchases. We will assume that sellers understand what kinds of sales are tax-exempt, even if we aren't entirely confident that this is true. Not every business, after all, has a big legal department to research the tax laws of all 50 states and the District of Columbia. Some small businesses may not know that the states and D.C. treat Internet sales differently.

Sellers based in California should treat Internet sales the same way they treat in-person sales. To do so, sellers must register with the state's Board of Equalization (; the website provides step-by-step instructions.

Sellers without a physical presence in California have a slightly different rule. If the merchandise are delivered to a location within the state, the merchandise may be taxable. This is the use tax we talked about above. As we said, the purchaser is responsible for paying the use tax -- usually. If, however, the seller has a location in California, be it permanent or temporary, warehouse or headquarters, the seller must collect the use tax from the buyer. Essentially, the law treats these companies as if they were based in California.

The requirement also applies to sellers who have certain personnel in the state, again, even if they are temporary. An executive would likely not qualify, but someone who sells directly, takes orders, installs or assembles the product or makes deliveries of the companies' merchandise does qualify. And, because this company qualifies, it must register with the BOE.

We'll continue this in our next post.

Source: California State Board of Equalization, "Publication 109, Internet Sales," March 9, 2014 

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