The California Department of Tax and Fee Administration (CDTFA) recently issued a special notice updating out-of-state e-retailers regarding their sales and use tax obligations for products delivered to California consumers. Specifically, beginning October 1, 2019, it will be the marketplace facilitator, rather than the marketplace seller, who will be responsible for collecting and paying sales and use tax on retail sales.
The California Legislature recently passed Assembly Bill No. 321, which adds an exemption until January 1, 2024, to existing state sales and use tax laws related to "the sale of, or the storage, use, or consumption of, a new, used, or remanufactured truck with an unladen weight of 6,000 pounds or more that is purchased for use without this state." To claim the exemption, the taxpayer must provide:
For months, many out-of-state retailers have been working to determine the extent to which they may owe tax to California for sales made in prior years, even though they had no physical nexus in California. Following the U.S. Supreme Court's decision in Wayfair v. South Dakota, California took the position that out-of-state retailers who utilize Amazon to hold inventory and make sales to customers in California have sufficient nexus to meet the requirements to collect and pay sales/use tax to California. This was true even if the business sent inventory to Amazon outside of California and Amazon made the determination to store inventory in California.
The California Department of Tax and Fee Administration (CDTFA) recently announced it is offering relief to certain out-of-state retailers (referred to as "marketplace sellers") who are considered to be engaged in business in the state of California based solely on their use of in-state fulfillment centers to store inventory. Qualifying retailers may be entitled to reduced tax liabilities, penalties, and interest, effective June 27, 2019.
The U.S. Supreme Court recently issued a unanimous decision in North Carolina Dept. of Revenue v. The Kimberley Rice Kaestner 1992 Family Trust, ruling that residence in a state is not a sufficient reason to tax an out-of-state trust's undistributed income. Justice Sonia Sotomayer delivered the opinion, explaining the Court's two-step analysis of the case in regards to the 14th Amendment on due process. The judges considered that there must be "some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax" and that the "income attributed to the State for tax purposes must be rationally related to 'values connected with the taxing State.'" In this instance, "the presence of in-state beneficiaries alone does not empower a State to tax trust income that has not been distributed to the beneficiaries where the beneficiaries have no right to demand that income and are uncertain ever to receive it."
Arizona Attorney General Mark Brnovich recently asked the U.S. Supreme Court for permission to file suit against the State of California over the $800 minimum business tax imposed on investors in certain LLCs. Brnovich contends that the California minimum tax, and California's related collection efforts when investors or businesses do not pay, is illegal because the investors have "purely passive investments in California companies." In addition, since the $800 minimum tax is deductible on Arizona tax returns, the California practice is costing Arizona more than $484,000 annually.
The California Department of Tax and Fee Administration (CDTFA) announced this week that, starting April 1, 2019, out-of-state retailers whose sales for delivery into California exceed $100,000 or 200 deliveries will be required to register with California and collect and pay over sales tax. Businesses that meet these thresholds for a single local jurisdiction will also need to collect and pay over that district's use tax, in addition to the state tax.
The California Legislative Analyst's Office (LAO) released a fiscal outlook report recently that indicates California will soon be implementing changes to sales and use tax collection for out-of-state businesses in the wake of the June 2018 Wayfair decision. "The administration plans to start registering out-of-state taxpayers soon," the LAO wrote, and anticipates increases to state revenue from related changes starting around $100 million or more in the next couple years. To read the full report, click here.
On September 25, 2017, Governor Brown signed S.B. 813 into law, which, effective January 1, 2018, expands the existing California state voluntary disclosure program to include out-of-state trusts with California beneficiaries and non-resident partners. Such taxpayers will now be eligible to use the voluntary disclosure program to bring non-California trusts into compliance with California state tax laws. In addition, the Franchise Tax Board (FTB) may waive late-filing penalties for certain types of entities and returns under the program.
The IRS released its most recent State-to-State Migration Data which summarizes information gleaned from individual income tax returns. Trends indicate that taxpayers are migrating into states including Texas, Florida, Colorado, and South Carolina, whereas taxpayers are leaving New York, Illinois, California, New Jersey, and Pennsylvania. Conclusions regarding the reasons taxpayers move may vary; however, self-interest usually prevails. Not surprisingly, the trend indicates taxpayers are leaving states with higher income tax rates and moving into states like Texas, which has no individual income tax. If you are a California resident and plan to either permanently change your tax domicile to another state, or become a part-year resident, it is important to make sure you take the necessary steps to end your residency with California and that you understand any continuing tax obligations you may have in California. Taxpayers should consult a California tax professional for complete advice on California income tax obligations or if contacted by California in a tax residency audit.