California’s New Sales Tax Rules for Out-of-State Retailers with Affiliate and Economic Nexus Began September 15, 2012

An out-of-state retailer formerly not subject to sales tax is now required to register with the California Board of Equalization (BOE) and begin collecting sales tax starting September 15, 2012 if either of the following criteria are met: (1) having an affiliate of your controlled group with nexus in California which is involved with the retailer’s sale of tangible personal property in any way, including the rendering of services associated with such property (affiliate nexus); or (2) contracting with a California resident individual or business, affiliated or not, that solicits and/or refers potential purchasers of tangible personal property and two dollar-driven thresholds are met (economic nexus). 

The economic thresholds are met if the out-of-state retailer sold more than $1 million of sales to California customers in the past 12 months; and if $10,000 of those sales were as a result of the referral agreement by the in-state person.

There is an exception to the economic nexus issue if the agreement severely restricts the ability of the instate representative to solicit sales and the parties are willing to annually certify under penalty of perjury that the restrictions are met.  More details regarding annual certification can be  found  HERE.

The BOE will be sending letters out to known out-of-state retailers and is encouraging online registration.

To review the BOE’s special notice regarding these new tax rules, please click here.

To explore the BOE’s frequently asked questions related to this topic, please click here.


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Gary Bingel's expertise focuses on state and local income taxation, and sales and use tax consulting. He has significant experience serving clients in the manufacturing, retail, pharmaceutical, biotechnology, technology and service industries.

Andria Siciliano is a Director in the State and Local Tax Group with expertise in state and local sales and use taxation, plus payroll, property and income tax compliance and consulting.