Changes in California's Sales Tax Collection

Governor Brown has signed a bill that expands the definition of "retailer engaged in business in the state" to include retailers having agreements with persons in California to refer potential purchasers to the retailer through an internet-based link or an internet website, or other means.  In addition, the legislation requires retailers to collect sales tax when they have an agreement with another member of the retailer's commonly controlled group to perform services in California in connection with tangible personal property to be sold by the retailer.  (L. 2011,A28(c.7) effective 6-28-11.)

"Click-through nexus," The legislation requires retailers to collect sales tax when there exists what is commonly know as "click-through nexus." A retailer is considered to be engaging in business in California, and thus required to collect tax on sales to purchasers in the state, when the retailer enters into an agreement under which a person in California, for a commission or other consideration, refers potential purchasers of tangible personal property to the retailer, whether by an internet-based link or an internet website, or other means.  For nexus purposes, a "retailer" includes an entity affilated with a retailer for federal income tax purposes under IRC sec 1504.  The retailer's activities must meet the following thresholds before "click-through nexus" will apply (both conditions must be met):

(1) the total cumulative sales price from all of the retailer's sales, within the preceding 12 months, of tangible personal property to purchasers in California that are referred pursuant to all such agreements with a person or persons in California, is in exess of $10,000 and

(2) the retailer, within the preceding 12 months, has total cumulative sales of tangible personal property to purchasers in California in excess of $500,000.

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