CCH Tax News Headlines - April 8 AND April 9, 2010

Under the current rules, if a resident in CA buys something from a company located outside the state, but that company has an affiliate in CA, and the product is shipped from that affiliate, then shouldn't sales tax be due on the item?

The legislation says that sales tax will be collected from a company if that company is part of a network of companies and one of the companies in that network has a presence in California. Seems like the Amazon sales tax issue I read about once

-- not sure who would be covered by the exceptions.

If the legislation is enacted as currently drafted, the presumption could be rebutted by evidence that, during the calendar year at issue, the component member that is a retailer engaged in business in California did not engage in any of the following activities on behalf of the retailer:

(1) maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place, or other place of business;

(2) having any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in California under the authority of the retailer or its subsidiary for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property;

(3) in regards to a lease, any retailer deriving rentals from a lease of tangible personal property situated in California; or

(4) soliciting orders for tangible personal property by mail if the solicitations are substantial and recurring and if the retailer benefits from any banking, financing, debt collection, telecommunication, or marketing activities occurring in California or benefits from the in-state location of authorized installation, servicing, or repair facilities.

Depends on what you mean by affiliate. In any case, the purchaser will owe use tax if they don't pay sales tax. And CA has been getting more aggressive about collecting that.

They have to justify exercising jurisdiction over the out of state company. Sounds like they're saying that if there is an effective partnership between an out of state company and an in-state company, they can do that. I haven't had occasion to research that precise issue, so I don't know whether it makes constitutional sense.

The rule now is that if the company has representatives (as opposed to independent contractors) in the state, they have to collect sales tax. They want to expand that to contractors, apparently.

With all those exceptions they are trying to deal with the constitutional problem of one state not having the right to exercise jurisdiction over someone who is not in the state and has no contacts with the state.