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October 7, 2011 > Out-of-state retailers' tax collection mandate delayed but consumers still owe use tax

Out-of-state retailers' tax collection mandate delayed but consumers still owe use tax

New law gives time for out-of-state retailers to seek federal legislation

Submitted By Anita Gore

Betty T. Yee, First District Member of the California State Board of Equalization (BOE), announced on October 3, 2011, that the BOE will cease implementation of ABx1 28, the bill signed by Governor Brown in June 2011 as part of the budget requiring tax collection by certain out-of-state retailers. The Governor has signed an alternative measure, AB 155, giving such retailers time to push for passage of federal legislation, thereby delaying requirements of the previously signed bill. The main provisions of ABx1 28 are also included in AB 155 and will be revived at a later date.

"Although e-fairness is on hold, consumers still owe use tax," Yee said. "However, through either state law or a federal solution, online retailers will soon collect sales and use tax on the same terms as other retailers, so consumers will have their tax collected the same way on all types of purchases. We are working to implement e-fairness as soon as the law takes effect, with clear guidance to benefit consumers, retailers and the state."

If a federal law governing the imposition of use tax collection obligations by the states is not enacted on or before July 31, 2012, then the provisions of ABx1 28 that expanded the California use tax collection obligations of out-of-state retailers will again take effect September 15, 2012. If a federal approach is enacted by July 31, 2012, and California does not elect to join the federal solution by enacting conforming state legislation by September 14, 2012, then those provisions of ABx1 28 will revive effective January 1, 2013.

Upon revival, the safe harbor threshold for small retailers will be $1M instead of $500,000. This provision generally requires sales into California by out-of-state retailers to exceed $1M per year before collection of tax is necessary.

When out-of-state retailers do not collect California tax, California consumers remain responsible for payment of use tax on their purchases. Use tax applies generally to the same types of items that are subject to sales tax. Tax applies to the sale or use of tangible personal property in California, those items that can be seen, weighed, measured, felt or touched or which are in any other manner perceptible to the senses. Use tax is the equivalent of sales tax and has been the law since 1935.

If you are not required to have a permit or a use tax account, the easiest way to report and pay the use tax is on your California state income tax return. You may also register with the BOE as a use tax payer and make the payment directly to the BOE.

As directed by the Board at their September Board meeting, staff will continue with the previously approved interested-parties process to discuss potential amendments related to the anticipated revival of the provisions of ABx1 28 on either September 15, 2012, or January 1, 2013. These meetings will be held October 31 and December 20, 2011, in Sacramento and November 2 and December 22, 2011, in Culver City.

Staff began the process of implementing ABx1 28 by sending questionnaires to some out-of-state retailers to determine if they met the requirements to collect California tax on sales to California consumers. Those retailers previously contacted by the BOE will receive follow-up letters explaining the change in the law.

For more information, visit www.boe.ca.gov and www.taxes.ca.gov.

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