Free Tax Guide
Sales Tax Requirements for Retailers Outside of California
Key Takeaway
Out-of-state retailers must collect California sales/use tax on sales to California customers if they have California nexus under four primary tests: (1) physical presence (employees, inventory, office); (2) economic nexus under post-Wayfair California rules ($500,000+ CA sales); (3) affiliate nexus (related entities in California); and (4) marketplace facilitator nexus. The short version is that post-2018, California adopted economic nexus — out-of-state retailers with $500,000 or more in California sales must register with CDTFA and collect sales tax. Marketplace facilitators (Amazon, eBay) generally collect on behalf of third-party sellers.1
Out-of-state retailer with CA sales? A 15-minute consultation is free.
Post-Wayfair, the nexus landscape changed dramatically. Out-of-state retailers now face economic nexus obligations in California and most states. This chapter walks through the four nexus tests.
The Four California Nexus Tests
TraditionalPhysical Presence
Post-WayfairEconomic
RelatedAffiliate
PlatformMarketplace Facilitator
| Test | Threshold2 |
|---|---|
| Physical Presence | Any CA office, employee, inventory |
| Economic | $500,000 in CA sales |
| Affiliate | Related entity with CA nexus |
| Marketplace Facilitator | Platform collects on behalf of sellers |
Quick Reference
Jump to test: physical presence, economic, affiliate, or marketplace facilitator.
1. Physical Presence Nexus
Any California physical presence creates nexus — office, warehouse, employees, inventory, independent contractors with qualifying activities.
If this is you: You have California physical presence. Register with CDTFA, collect sales tax on CA sales, file CDTFA returns.
Physical Nexus Strategy
- Identify CA physical presence.
- Register with CDTFA.
- Collect and remit sales tax.
- File quarterly or monthly returns.
- Maintain compliance.
2. Economic Nexus
Under Revenue and Taxation Code §6203, out-of-state retailers with $500,000 or more in California sales in the current or preceding calendar year have economic nexus.
If this is you: Your California sales exceed $500,000 annually. Economic nexus applies. Register with CDTFA. Economic nexus is calendar-year measured.
3. Affiliate Nexus
Related entities with California nexus can create affiliate nexus for out-of-state affiliates performing specific activities.
If this is you: Your parent or sister entity has California operations. Affiliate nexus may apply. Specific rules under RTC §6203(c).
4. Marketplace Facilitator Nexus
Under California’s Marketplace Facilitator Act (effective 2019), platforms collect sales tax on behalf of third-party sellers.
If this is you: Selling through Amazon, eBay, Etsy, or similar platform. The marketplace generally collects CA sales tax. Your own direct sales may still trigger nexus separately.
CDTFA reviewing out-of-state sales? Book consultation.
Nexus Document Lookup
| Document | Purpose |
|---|---|
| Form CDTFA-38 | Seller’s Permit Application |
| Form BOE-401-A2 | Sales/Use Tax Return |
| RTC §6203 | Economic nexus statute |
| AB 147 (2019) | California marketplace facilitator law |
| South Dakota v. Wayfair | Economic nexus constitutional basis |
| Publication 77 | Out-of-State Sellers |
Nexus and Audit Statute
- 3-year CDTFA audit statute.
- 8-year substantial understatement.
- Unlimited for fraud or non-filing.
- Pre-nexus non-filing: CDTFA can assess for any year once nexus established.
Nexus Compliance Patterns
| Compliance Status | Typical Outcome |
|---|---|
| Registered + compliant | Routine filings |
| Economic nexus + not registered | Retroactive assessment |
| Physical nexus + not registered | Larger retroactive assessment |
| Voluntary disclosure agreement | Reduced penalties, limited lookback |
Nexus Audit Escalation
Nexus Identification
CDTFA identifies via third-party data, referrals, or investigation.
Assessment
Historical sales tax assessment for nexus period.
Voluntary Disclosure
VDA path reduces lookback and eliminates penalties.
First 48 Hours of Nexus Issue
- Assess nexus tests.
- Compute CA sales by year.
- Register with CDTFA if nexus exists.
- Evaluate VDA eligibility.
- Engage counsel.
★Brotman Law helps out-of-state retailers navigate California nexus. Based in San Diego.
The ROI Question
Voluntary disclosure before CDTFA contact can limit retroactive assessment. Professional nexus assessment typically saves multiples of the fee.
Facing a California Sales Tax Audit?
CDTFA audits move quickly once a notice arrives. The direction of the audit is largely set by how you handle the initial document request and auditor interview. If you’re at any stage — from notice through assessment — we can review where things stand and identify what options are available.
Discuss My Sales Tax Audit → Or call: (619) 378-3138
When to Engage Attorney
- Approaching economic nexus threshold.
- CDTFA nexus inquiry.
- VDA under consideration.
- Multi-state nexus complexity.
Nexus question?
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Guide Chapters
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Frequently Asked Questions
Do out-of-state retailers collect CA sales tax?
Yes, with California nexus. Four tests: physical presence, economic ($500K+ annual CA sales), affiliate, and marketplace facilitator. Post-Wayfair, economic nexus applies to many more out-of-state sellers.
What is economic nexus in California?
Under RTC §6203, out-of-state retailers with $500,000 or more in California sales in current or preceding calendar year have economic nexus. Must register with CDTFA and collect sales tax on California sales.
Does Amazon collect CA sales tax for me?
Generally yes under California’s Marketplace Facilitator Act. Amazon, eBay, Etsy, and similar platforms collect CA sales tax on third-party seller sales. Your own direct sales (outside the marketplace) may still require separate registration.
When does physical presence create nexus?
Any CA office, warehouse, employee, inventory, or qualifying independent contractor activity creates nexus. Attending trade shows in California, having inventory in CA fulfillment centers, or hiring CA employees all potentially create nexus.
What happens if I don't register but have nexus?
CDTFA can assess sales tax retroactively. 3-year statute for regular assessments; longer for fraud or non-filing. Voluntary Disclosure Agreement (VDA) can limit lookback period and eliminate penalties.
What is a Voluntary Disclosure Agreement?
CDTFA program allowing out-of-state retailers to come forward before CDTFA contact. Limits lookback (typically 3 years), eliminates most penalties, and produces clean compliance. Available only before CDTFA initiates contact on the specific issue.
How do I register with CDTFA?
Form CDTFA-38 (Seller’s Permit Application). Free. Online at CDTFA.ca.gov. Required before making taxable sales in California. Registration is immediate for simple cases.
What if I sell to California only occasionally?
Even occasional sales to California can trigger physical nexus if other factors exist. Economic nexus requires $500,000+ annual sales. Very small California volume without other nexus factors typically does not require registration.
Do affiliate relationships create nexus?
Yes under California rules. Related entities performing specific activities in California can create affiliate nexus for out-of-state affiliates. Specific test under RTC §6203(c).
What if my sales to CA drop below $500K?
Nexus rules apply for current or preceding calendar year. Falling below threshold in a later year does not automatically remove nexus if it was established in the prior year. CDTFA may allow de-registration if nexus is clearly terminated.
Does drop shipping create CA nexus?
Yes under California rules if drop-shipment activities meet specific thresholds. California has specific rules for drop shippers. Out-of-state sellers using CA drop shippers often have nexus.
How does Wayfair apply to California?
South Dakota v. Wayfair (2018) overturned the physical presence requirement for state sales tax nexus. California adopted economic nexus via AB 147 (2019) with $500K threshold. Consistent with Wayfair constitutional standards.
What is the CA seller's permit?
Registration required before making taxable sales in California. Obtained via Form CDTFA-38 (or online). Free. Must be displayed at business location. Valid until revoked.
Next Steps
Nexus question? 15-min consultation free.
- CA economic nexus: RTC §6203.
- Threshold from AB 147 and CDTFA implementing regulations.
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