Hi everyone,
I run a small e-commerce business selling my book, and I use a fulfillment company that prints and ships my book from a warehouse in California. However, since I don’t have permission to collect sale tax in California, I currently do not sell to California customers - I only ship to other U.S. states and internationally.
My questions are:
- Sales Tax: Am I required to register for a California seller’s permit or collect sales tax, even if I don’t sell to California customers?
- Other Obligations: Would my use of a California-based fulfillment center trigger other tax obligations, like income tax or franchise tax, if I’m not a U.S. resident?
- Best Practices: Has anyone been in a similar situation? Are there any hidden costs or challenges I should be aware of?
I’d appreciate any advice or experiences you can share, especially if you’re familiar with California tax laws for non-U.S. residents.
Thank you in advance for your help!
Hi,
Here’s what you need to know about your situation:
1. Sales Tax: Storing inventory in California creates a “physical presence” nexus. Even if you don’t sell to California residents, you may still need to register for a seller’s permit (CDTFA).
2. Income Tax: Using a fulfillment center in California might trigger state income tax obligations, even for non-U.S. residents, depending on your business structure and tax treaties (Nolo).
3. Best Practices:
- Consult a tax professional for tailored advice.
- Monitor sales and nexus laws to stay compliant as your business grows (CDTFA).
- Keep thorough records of inventory and fulfillment activities.
This ensures you’re prepared for any tax obligations. Let me know if you have more questions!
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Hi,
Thanks for a detailed reply.
According to the CFTB website:
If you are doing business in California, you are subject to our tax laws.
We consider you to be “doing business” if you meet any of the following:
- Engage in any transaction for the purpose of financial gain within California
- Are organized or commercially domiciled in California
- Your California sales, property or payroll exceed the following amounts:
My sales and inventory is well below the specified thresholds. On the other hand “Engage in any transaction for the purpose of financial gain within California” confuses me. Does it mean that inventory stored in California is “doing business”? If yes, what is the purpose of the financial thresholds?
Is your fulfillment company printing and shipping your book on demand like a print on demand service? Or do you have copies of your book that are owned by you sitting in a warehouse waiting for the fulfillment company to ship them out when you make a sale?
They print a specific quantity of books and store them in their warehouse, later they fulfill orders.
Okay, that sounds like it’s your inventory in this case and I would imagine that this would indeed trigger physical nexus.
However, you say you do not sell to CA sellers. Do you have more information on that? Is it simply because you haven’t yet made a sale or that you are intentionally avoiding selling to CA?
If I change the model to print on demand, would it remove the physical nexus?
Hmm, that’s a great question. I don’t actually know the answer to that one off the top of my head. You could call up the CDTFA and see what they think which is likely okay if you’ve made no sales so far. In the current model, I am pretty confident they would require you to file, although, not selling to CA residents is an interesting wrinkle. The CDTFA has some situations where they say that you don’t need to register if you have nexus but don’t sell taxable items. They might take the same approach if you don’t sell anything at all and are just storing product if you truly don’t allow sales to CA. I don’t know for sure, I am just trying to piece together your situation with information that I have on hand.