CA Economic Nexus Marketplace Facilitator Act

California Redefines Economic Nexus and Marketplace Facilitator Laws

by Jennifer Clark

California Sales Tax

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Ever since the Supreme Court passed the Wayfair vs. South Dakota decision in June 2018, state laws around economic nexus continue to evolve and change shape. While more than 35 states have passed laws that define economic nexus and are currently in effect, there is still no one-size-fits-all requirement around sales tax. Sellers must keep up with pending, passed, and evolving laws in order to be compliant.

One of the biggest changes to hit online sellers recently was California’s economic nexus law taking effect April 1, 2019, and then — less than a month later — a completely new update passed that dramatically impacted remote businesses.

In December 2018, the California Department of Tax and Fee Administration (CDTFA) alerted remote sellers to upcoming economic nexus legislation that would require them to start collecting and remitting sales tax beginning April 1. As that date neared, there was speculation around whether or not the financial and transaction requirements would happen as originally proposed, much to the delight of small business owners. 

The CDTFA’s original economic nexus law required out-of-state sellers who made more than $100,000 in sales or at least 200 transactions into the state during the current or previous year, to collect sales tax. This threshold mirrored South Dakota’s economic nexus requirements, much to the dismay of thriving online sellers who were quick to notice the difference in the two states’ economies.

New Economic Nexus Requirements

Just four short weeks after the law took effect, California Governor Gavin Newsom signed California Assembly Bill 147 on April 25, 2019, giving small business owners a little breathing room. Now, remote sellers who earn less than $500,000 are no longer required to collect sales tax from their California customers. This new law raises the requirement of sales from tangible personal property in the preceding or current calendar year. Even more, AB 147 also eliminated the transactional requirement.

Marketplace Facilitator Law Update

In addition to the impact this bill made for out-of-state retailers, it also imposed a new sales tax obligation for marketplace facilitators like Amazon and Ebay.

Beginning October 1, 2019, marketplace facilitators in California must collect and remit sales tax on all sales made through that marketplace if they surpass $500,000. AB 147 defines marketplaces as a physical or electronic place, including, but not limited to, a store, booth, internet website, catalog, television or radio broadcast, or a dedicated sales software application.

This means that after October 1, both in- and out-of-state marketplace facilitators like who meet the $500,000 threshold are now required to collect sales tax made on all sales into the state through the marketplace. Individual marketplace sellers, however, won’t be held responsible for collecting those sales tax.

What Does This Mean for Sellers?

This is another win for smaller online retailers, as the bigger platforms will collect sales tax for sales from their websites, even if they come from third-party retailers. Where smaller sellers once feared bankruptcy and even wrote to California Treasurer Fiona Ma in support (Ma has a history of fighting for SMBs around sales tax), they are now encouraged to sell on these marketplace platforms.

Just like with all of the sales tax laws around economic nexus, chances are, changes will continue to occur. Subscribe to the TaxJar blog to stay up-to-date with current legislation and upcoming nexus activity. To understand where you may have nexus, our free sales and transactions checker allows you to import your sales data and quickly learn where you’re required to remit sales tax.

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