California’s New Online Sales Tax Law Could Impact California Wine Purchases

Earlier this week, California legislators passed a law that requires large internet retailers to collect sales tax for orders placed from California customers. Most of the publicity surrounding the bill has been on large internet retailers like Amazon.com and Overstock.com, which have strongly opposed the law, and are now beginning the process of limiting their presence in California in order to avoid needing to charge sales tax on California purchases. However, the law is not limited to these major retailers, as it stands to affect consumers who order alcohol online as well as out-of-state alcohol retailers who do substantial business in the state.

Two primary factors will most impact whether an alcohol retailer and its consumers will be affected by the new law. First, the law is aimed at large retailers, and only applies only to businesses that have sales within California in excess of $500,000 over the previous 12 months. This likely means that orders from small wineries would remain untaxed, while large internet retailers will probably need to start charging sales tax to California consumers.

Second, the law applies only to retailers that have a “substantial nexus” in California. The precise meaning of this term has already been the source of considerable confusion, and large retailers like Amazon.com have begun breaking ties with California-based affiliates and entities that provide “click-throughs” to their site, so that they are not affected by the law. How this provision affects out-of-state alcohol retailers remains unclear. Retailers that are definitely subject to the law are those with a place of business in California, including an office, place of distribution, sales room, or warehouse. Also, retailers with representatives or salespeople in California will be subject to the law. What remains unknown is whether retailers without any such contacts will be required to collect sales tax on shipments into the state. Stay tuned.

California’s new law went into effect on July 1, 2011, and is codified at Cal. Rev. & Tax Code § 6203.

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This entry was posted on July 01, 2011.