California Economic Nexus

California is the fifth largest economy in the world. Their nexus laws affect a large number of businesses. Here’s what you need to know.

Nexus Threshold

The nexus threshold or the specific point where your business would trigger a tax obligation is determined by having more than $500,000 in sales of tangible personal property in California during the current or prior calendar year.

If you meet or exceed this threshold, you must register for a sales tax permit on the date the threshold was crossed.

Once registered, you must collect and remit sales tax on all California sales, and keep records of those sales throughout the calendar year and the following calendar year.

Other Factors That May Trigger Nexus:

• Physical presence:
  Examples of a physical presence in this state include, but are not limited to:
  • Maintaining inventory or office locations in California.
  • Having representatives in California for purposes of taking orders, making sales or deliveries, or installing or assembling tangible personal property.
• Affiliate nexus: Collaborating with in-state affiliates (e.g., marketing, fulfillment) might establish nexus.
• Delivery nexus: Using your own employees or third-party delivery services in California could trigger nexus.

Software as a service products delivered remotely are exempt from this requirement.

Important! Trailing nexus for California State Use tax

When sales exceed $500,000 in any calendar year, an out-of-state retailer must register and remain registered with California and continue to collect state tax throughout the calendar year and during the following calendar year.

On January 1 of any subsequent year, an out-of-state retailer is not required to remain registered if its sales didn’t exceed the $500,000 economic nexus threshold the preceding calendar year.

For example, if you exceeded the $500,000 economic Nexus threshold in 2021, but not in 2022 or 2023 you are required to collect and remit sales tax through December 31, 2022. On January 1, 2023, you are no longer required to collect sales tax and you can deregister.

Click here for a short must-read article on trailing nexus.

Get it in Writing!

The statement below is from the California Department of Tax and Fee Administration.
“California tax laws can be complex and difficult to understand. If you have specific questions, you must get the answers in writing from the California Department of Revenue. It’s the only way you can be certain you are protected from tax, penalties and interest in case you’re given erroneous information.”

Call us today at 720.878.2280. We’ll help you navigate the increasingly complicated world of tax nexus.