HdL’s Issue Updates provide you with the most recent information on legislative, legal and regulatory issues that could affect your community.
Tax Allocation Guidelines for Local Sales and Use Tax
Since the birth of digital retail in the 1990’s, both retailers and consumers have had to adapt to new and evolving ways to interact. These changes also present challenges when applying Sales & Use Tax Laws and allocation rules. Sales tax laws adopted in the 1950’s could not have anticipated the complexity of today’s wide range of consumer shopping options. The guideline below outlines the necessary steps to determine the proper local tax allocation for a variety of retail transactions. Click HERE to download this Issue Update in PDF format.
SALES TAX OR USE TAX?
In order to determine the correct allocation of the local 1% Bradley-Burns tax, we must first determine if sales or use tax applies to the transaction.
Sales Tax: Sales tax applies when the goods are located in California at the time the sales occur. This includes a stock of goods held in a California warehouse, fulfillment center or retail stores.
Use Tax: Use tax applies when title to the goods passes to the purchaser at a point outside of California. Goods that ship to a customer from outside the state are generally subject to use tax.
ALLOCATION OF TAX
Sales Tax: Local 1% sales tax is allocated to the retailer’s place of business in California. This is the place where the transaction occurs, or the order is taken. Per Regulation 1802(a)1, in order for a local jurisdiction to receive a direct allocation of local 1% sales tax, the facility must be the retailer’s place of business in this state. Drop-ship facilities, a supplier warehouse, or facilities operated by a separate legal entity do not qualify for a seller’s permit and would not be eligible for a direct allocation of local 1% tax.
Use Tax: Use tax generally is allocated to the countywide pool based on the place of first functional use. Orders that ship from out of state that explicitly state title passes upon delivery are an exception to this general rule.
CALIFORNIA SALES & USE TAX: Tax Allocation Guidelines for Local Sales and Use Tax
This chart is designed to show general scenarios that can impact the California local (1%) sales and use tax allocation. This chart does not exhaust all the sales and use tax law nuances that may determine a taxpayers filing status but rather focuses on the most common processes from sale to delivery.
Source: California Department of Tax Fee Administration Regulation 1802 & 1699
As e-commerce retail develops alternative ways for consumers to purchase taxable goods it becomes more important for local government leaders to understand the proper reporting and distribution of sales taxes. How retailers handle orders, inventory, and delivery of taxable goods continues to evolve which impacts current and future sales tax revenues for California’s cities and counties.
Click HERE to download this Issue Update in PDF format.