Recent legislation in California enacted click-through nexus provisions. The law creates use tax collection obligations for certain out-of-state retailers. The legislation revised the definition of “retailer engaged in business in this state” to include out-of-state retailers that enter into agreements with others in California who either directly or indirectly refer potential customers of tangible personal property through the internet or a website link.
Two additional conditions must be met for the revised definition to be applicable: 1) the sales price of California sales of tangible personal property resulting from the agreements exceeds $10,000 during the previous 12 months and 2) the retailer has sales of tangible personal property to California customers in excess of $500,000 for the preceding 12 months. The definition also includes any entity affiliated with the California retailer such as a commonly controlled group or combined reporting group.
Since the law has been passed, the California Board of Equalization has announced that the new law does not require retailers to collect district use taxes unless they are conducting business in the district.
There is much debate about the new law. A referendum has been filed with the California Attorney General’s Office, which may put the law on the ballot allowing California voters the opportunity to overturn it. The Board will consider amending Sales and Use Tax Regulation 1684 through a public process; the first public meeting is expected to take place in October.
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