Free Tax Guide
Why Are Out-of-State Companies Taxed in California?
Key Takeaway
Out-of-state companies with California customers face four tax exposures: (1) sales / use tax if nexus exists; (2) income tax via CA Factor Presence ($711K sales threshold); (3) payroll tax if CA employees or contractors; and (4) $800 minimum franchise tax once doing business. The short version is that California’s economic nexus thresholds are aggressive. In our experience, many out-of-state sellers discover CA exposure only after receiving an FTB questionnaire or CDTFA sales tax notice.1
Out-of-state CA exposure? A 15-minute consultation is free.
Four CA tax exposures for out-of-state companies.
The Four CA Out-of-State Exposures
SalesUse TaxIncomeFactor PresencePayrollEmployees$800 MinFranchise Tax
| Exposure | Threshold2 |
|---|---|
| Sales / Use Tax | $500K economic nexus |
| Income Tax | $711K sales / $71K prop-payroll |
| Payroll | CA employees / contractors |
| $800 Min Tax | Doing-business status |
Quick Reference
Jump to: sales, income, payroll, or min tax.
1. CA Sales / Use Tax
$500K economic nexus threshold post-Wayfair.
If this is you: Out-of-state seller with CA sales over $500K. Register with CDTFA. Collect sales tax. File returns. Marketplace facilitator coverage for Amazon / eBay / Etsy.
Sales Tax Strategy
- Track CA sales.
- Monitor $500K threshold.
- Register CDTFA when triggered.
- Collect / remit.
- Consider VDA for prior gaps.
2. CA Income Tax
Factor Presence: $711K sales or $71K property / payroll.
If this is you: CA sales over $711K (2024) or $71K property/payroll. Doing business. File Form 100 / 568. Pay income tax + $800 minimum.
3. CA Payroll Tax
CA employees / contractors create payroll obligations.
If this is you: Any CA employee or remote worker. Register with EDD. Withhold CA income tax. Pay SUI / ETT / SDI. Report wages.
4. $800 Minimum Franchise Tax
Doing-business status creates $800 annual franchise tax.
If this is you: Any year doing business in CA. $800 minimum due regardless of income. Every year. Compounds for multi-year non-filers.
Out-of-state CA exposure? Book consultation.
OOS CA Lookup
| Authority / Form | Purpose |
|---|---|
| CDTFA registration | Sales tax |
| Form 100 / 568 | CA income / franchise |
| EDD DE 1 | Employer registration |
| RTC §23101 | Doing-business definition |
| CA Factor Presence | Economic thresholds |
OOS CA Statute
- CA FTB: 4-year statute.
- CDTFA: 3-year sales tax.
- Unfiled: unlimited.
OOS CA Patterns
| Situation | Outcome |
|---|---|
| CA customers no registration | Escalating letters |
| $500K CA sales | Sales tax nexus |
| $711K sales | Income tax nexus |
| VDA pre-contact | Best outcome |
OOS CA Escalation
Nexus Letter
FTB / CDTFA questionnaire.
Audit
Multi-year back-tax.
Resolution
Assessment or settlement.
First 48 Hours
- Inventory CA activities.
- Measure thresholds.
- Calculate exposure.
- Evaluate VDA.
- Engage counsel.
★Brotman Law handles out-of-state CA tax issues. Based in San Diego.
The ROI Question
CA retroactive exposure reaches six figures. Pre-contact VDA dramatically limits exposure.
Dealing with Multistate Tax Exposure?
Multistate obligations don’t announce themselves — most businesses accumulate sales tax, income tax, or payroll tax exposure in other states without realizing it until they’re contacted or audited. If you’re selling across state lines, have remote employees, or aren’t sure where your business has nexus, a brief review can identify where you have exposure and what to do about it.
Review My Multistate Exposure → Or call: (619) 378-3138
When to Engage
- Out-of-state company with CA activity.
- CA threshold crossed.
- FTB / CDTFA inquiry.
- VDA consideration.
Out-of-state CA?
15-min consultation free.
Guide Chapters
Have questions?
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Frequently Asked Questions
What if I have CA customers but no presence?
Depends on thresholds. Over $500K CA sales: sales tax. Over $711K (2024) or $71K property/payroll: income tax. Under: limited exposure typically.
When do I register with CDTFA?
When nexus triggered. $500K economic or physical presence. Ongoing registration creates ongoing obligation.
Do I owe CA $800 min?
Only if doing-business. Thresholds or active operations. Not just having CA customers unless thresholds crossed.
What if I'm Amazon FBA seller?
CA FBA inventory can create physical nexus. Amazon marketplace facilitator handles sales tax. Other tax types remain.
What about remote CA employee?
Creates payroll obligations. Often income tax nexus. Document location carefully.
Can I just not register?
Risky. CA aggressively enforces. Detection increasingly automated. Retroactive exposure compounds.
What's the VDA process for CA?
Pre-contact application. Limited look-back. CDTFA and FTB separate programs. 3-4 year look-back typical.
Does out-of-state accountant suffice?
For basic returns possibly. Complex CA issues benefit from CA specialist. Local insight on CA-specific rules valuable.
What about dropshipping to CA?
Can create tax exposure. Retailer / shipper analysis. Multiple parties potentially responsible.
Does PL 86-272 help?
For income tax: protects TPP sellers with solicitation-only. Doesn’t protect sales tax or other. MTC guidance narrowing.
What if customer is in CA but shipped elsewhere?
Destination-based sourcing generally. Delivery location controls for sales tax. Economic nexus measured by sales into CA.
Are digital services subject to CA sales tax?
Generally no. CA taxes TPP. Services and digital goods generally outside. Specific exceptions exist.
What if I sell only to CA businesses?
B2B sales still create nexus. Resale certificates may exempt sales tax on qualifying transactions.
Next Steps
Out-of-state CA question? 15-min consultation free.
- CA Factor Presence: RTC §23101(b). Sales tax economic nexus: RTC §6203.
- Thresholds 2024; indexed annually.
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