Attention All Retailers! Starting April 1, New District Use Tax Collection Requirements will be enforced
If you are a retailer, be prepared for the upcoming changes. Starting April 1, 2019, those who are registered with the California Department of Tax and Fee Administration (CDTFA) will be required to collect and pay a district’s use tax. This is enforced when the retailer’s sales into the district are greater than $100,000. It also applies when there has been more than 200 hundred transactions made with the retailer or the retailer made sales into the district in two hundred (200) or more separate transactions. Retailers must report and pay any collected district tax to the CDTFA on their sales and use tax return.
To elaborate, district taxes are sales that are voter-approved and are then used for taxes based on cities, counties, and other local jurisdictions. At this time, the California sales and use tax rate is set at 7.25 percent. However the tax rate varies, as it can be higher based on locations that have imposed district taxes. In situations like this, the total tax rate includes the statewide tax rate in addition to the district tax rate(s).
This recent change to the district use tax collection requirement is in accordance to Revenue and Taxation Code section 7262 and the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. It is applicable to retailers who are required to be registered with the CDTFA, not just in California, but outside of the state as well. It is an additional tax that will be set into action by April 1, 2019.
Who is responsible for paying the district tax?
Retailers are taxed sales of tangible personal property for district sales taxes. Purchasers make district use taxes depending on their use of tangible personal property in a district. It is the retailers responsibility to collect the district’s use tax. This then gets paid to the CDTFA on sales of tangible personal property delivered in the district. The retailer is considered “engaged in business” in a district if they are located in a taxing district.
There are a number of factors that determine if a retailer is “engaged in business in a district.” For example, they would be someone that maintains or uses any type of place of business, like an office, in the district. The use may be temporary or permanent, direct or indirect, or through an agent. They may also have a salesperson in the district who participates in business for their company, though they may not be the one physically doing business in the district. A retailer is also “engaged in business in a district” if they pay rent on tangible personal property in the district. Lastly, they are someone who could sell or lease vehicle that are then registered to the district.
If you are “engaged in business,” it is important that you understand the new requirement for collection of district use tax becomes effective April 1, 2019. Take into considerations the conditions that were earlier stated, but also recognize that this tax applies to you if you’re a retailer whose sales exceed $100,000 or you have made at least 200 separate sales within the preceding year.
Customers can become the persons liable for the district use tax on tangible property purchased from you for storage, use, or other consumption in that district. This occurs when you are not “engaged in business in a district.” As a courtesy to your customers, you may choose to collect the district use tax from them and report and pay it to the CDTFA.
If you have any questions, one of our trusted advisors, here at SoCo Tax & Cloud accounting, would be happy to help! To further understand CDTFA, visit Use Tax Collection Requirements Based on Sales into California Due to the Wayfair Decision