California enacts new internet sales-tax law

Gov. Gavin Newsome’s signature April 25 put California’s online sales-tax law into immediate effect. The law will replace an earlier administrative order directing out-of-state online sellers to collect and remit sales taxes.

AB 147 passed both chambers of the California legislature in April without a single negative vote. It includes a provision “requiring marketplace facilitators (e.g., Amazon and eBay) to collect sales and use tax on behalf of their third-party retailers,” according to a legislative analysis. It also “seeks to ensure that small businesses are not unduly burdened,” explaining that it exempts an online seller’s first $500,000 of sales to California residents.

That’s a sore point for some brick-and-mortar retailers, who must add sales tax to all their sales. The exemption gives online competitors a continuing advantage on price, at least until they reach the $500,000 threshold.

The administrative order set the exemption level at $100,000, but that is superseded by the new law.

The law is “consistent with the U.S. Supreme Court holding in Wayfair, which allows this state to impose a use tax collection duty on remote retailers with specified levels of economic activity in California, even though they do not have a physical presence here,” the legislative analysis said.

The law is expected to produce state and local revenue gains of $309 million in the current fiscal year and $476 million in the 2020-21 fiscal year.

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