Cyber Monday holds the record as the biggest online shopping day of the year. We now live in a society where online shopping is very common and often threatens to edge out brick and mortar stores. But it is not free from confusion, especially regarding California’s new online sales tax law.
While reports have suggested that all online sellers must now collect California sales tax, most major out-of-state online retailers like L.L. Bean and Overstock.com are not required to collect sales tax as long as they don’t have a presence in California.
On the other hand, major companies such as Walmart, Sears and Amazon.com are required to collect sales tax because of stores or distribution centers in the state.
The new law, which went into effect September 15, requires out-of-state sellers to collect tax if they make more than $1 million in annual sales to California consumers and at least $10,000 of those sales come through referrals from California-based affiliates.
Earlier this year the Board of Equalization mailed letters to more than 200 out-of-state retailers, notifying them of the new law. To date, only a few responded by beginning to collect sales tax.
When out-of-state retailers do not collect tax, California consumers are still required to report and pay the equivalent of sales tax, known as “use tax.” They can pay directly to the BOE online using their ePay service or pay on their California income tax returns.
“Most people oftentimes feel like they don’t owe it,” said George Runner, member of the California Board of Equalization (pictured left). “But the reality is that according to state law, they do.”
Though the state does not have an official system to monitor use tax, and George Runner noted that they “depend on the honesty of the taxpayer,” omissions will show up during tax audits.
If you do not keep a file of receipts from online purchases, it may be difficult to figure out how much use tax you owe. To help with this, the BOE has provided an easy reference chart that estimates use tax owed based on income.
For more information on online sales and use taxes, visit the Board of Equalization website.