Guide to Filing Sales Tax Returns for Businesses in California
Forty-five states in the U.S. currently charge a sales tax, including California. However, there are still some facets of California’s sales tax program that could be explained for retailers. If you are having trouble filing your sales tax returns in California, you should consult with an experienced tax lawyer for businesses. The Roseville sales tax lawyers at NewPoint Law Group are here to explain when businesses in California and online businesses should file sales tax returns.
Does Your Business Have Sales Tax Nexus in CA?
Businesses do not have to worry about California’s sales tax unless they have sales tax nexus in California. A retail business has sales tax nexus in California if the business has a significant presence in the state, meaning a company frequently conducts business within the state. Every retailer that engages in business within California has a sales tax nexus with the state. Being engaged in business in California can mean having:
- A physical location. A physical location can be an office, center for distribution, sale or sample room, warehouse or storage place, or another place of business.
- An employee working for you. This employee can be a representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in California under the authority of a retailer. This employee may sell, deliver, install, assemble, or take orders for any kind of tangible personal property.
- An affiliate. An affiliate includes a person or persons present in California for a commission or other compensation. An affiliate can directly or indirectly refer consumers to the retailer for the purchase of personal property by using an internet-based link or website. A nexus with California happens when sales from affiliates exceed $10,000 in the preceding 12 months, and total in-state sales exceed $1 million in the preceding 12 months.
- Presence at a trade show. Selling property at a trade show can give a retailer sales nexus with California. If a retailer had a physical presence at a trade show for 15 or fewer days in a 12-month period but did not sell over $100,000 of net income, there is no nexus. Retailers are still required to collect use tax from buyers at a trade show.
These are not the only ways that a sales nexus is established with California. An experienced tax lawyer can provide you and your business with comprehensive information regarding sales tax nexus.
Are Your Goods Taxable?
Generally, services in California are not taxable. For example, a plumber does not have to worry about sales tax. However, if you have a manufacturing business that also operates as a retailer, then you will have to collect sales tax.
Tangible property is taxable in California, with a few exceptions. For example, groceries, prescription drugs, and medical equipment are exceptions to the sales tax in California.
Therefore, if your job is being a freelance writer, you do not have to collect sales tax. If you are selling collectible action figures to consumers, then you must collect sales tax.
How to Collect Sales Tax in CA
Sellers who have sales tax nexus with California must apply for a California sales tax permit. A temporary sales tax permit is available for businesses operating in California for less than 90 days. It is illegal to collect California sales tax without possessing a permit.
Once you have received your sales tax permit, you must determine the amount of sales tax to collect. Most states have a sales tax system that is either origin-based or destination-based, but California has a hybrid of both. In origin-based systems, sales tax is collected based on where the seller is located. A destination-based system charges sales tax according to where the buyer is located.
Since California is a hybrid-origin sales tax state, a seller must collect at least two sales tax rates in California – one for buyers in the district where your business is located and one for buyers outside the district where your business is located. The sales tax rate is the sum of two rates, the sales tax rate (7.25% in 2018) and a district sales tax rate. The district tax rate ranges from 0.10% to 1.00%. There may be more than one district tax rate in effect, as California has four sales tax districts.
If you are a retailer based outside of California but have sales tax nexus with the state, it is generally easier to charge sales tax based on the sales tax rate at a buyer’s destination.
How to File Your Sales Tax Return in CA
The time for filing and paying California sales taxes depends on your assigned filing frequency and your state’s due dates. A business is assigned a filing frequency once they register for their California sales tax permit. California requires a seller to file and remit sales tax either monthly (which is rare), quarterly, semiannually, or annually.
Your filing frequency is based on the amount of your average monthly tax liability. For example, if your average monthly tax liability is $101 to $1,200, you must file sales tax returns quarterly. Small businesses will likely have to file less frequently.
California sales tax returns are typically due on the last day of the month following the reporting period. If the filing due date falls on a weekend or holiday, sales tax will be due the next business day. When it is time to file sales tax in California, you must:
- Calculate how much sales tax you owe.
- File the sales tax return.
- Make the sales tax payment.
CA Sales Tax Attorneys Can Help Your Company File Returns
If you are a business based in California or believe your business has California sales tax liability, you should consult with an experienced business lawyer in California for assistance. The California tax attorneys at NewPoint Law Group understand the intricacies of calculating sales tax liability and can help your business file its sales tax returns. To schedule your confidential consultation, call us at (800) 358-0305 or contact us online.