In the past, an online seller who sold to customers located in a particular state had to have some physical presence in that state before the state could require the seller to collect and pay state sales tax. However, the requirement for physical presence was overturned in the Supreme Court's decision in South Dakota v. Wayfair Inc. in 2018. Unlike many other states, California has not yet updated its laws for Internet sellers in the wake of Wayfair. But roughly six years before Wayfair, California already put in place special rules for Internet retailers selling in California.
In 2012, six years before the Wayfair decision, California put into effect a law under which certain larger Internet retailers with no physical presence in the state are nonetheless required to collect and pay California’s sales. More specifically, an out-of-state retailer must collect sales tax from California customers if that retailer:
Similar laws also were enacted in other states. They frequently were referred to as Amazon laws because they were aimed at large online sellers, such as Amazon.com, that might not have a physical presence in a particular state. Prior to Wayfair, if this type of seller had no physical presence in a state, it would not have had to collect sales tax from customers in that state.
California’s Amazon law is distinctive mainly because of the final condition listed above. Unlike analogous laws in other states, the law in California only applies if an out-of-state retailer not only has more than ten thousand dollars in click-through sales, but also has overall California sales exceeding one million dollars.
At the federal level, Congress has repeatedly considered legislation that would affect Internet retailers and how online sales taxes are collected in all states. In the wake of Wayfair, new proposed federal laws address minimum amounts of sales before a seller may be retroactively required to collect sales tax (Online Sales Simplicity and Small Business Relief Act of 2018 (H.R. 6814)) and barring states from retroactively requiring sellers with no physical presence in a state to collect sales tax (No Retroactive Online Taxation Act of 2018).
California has a special law dating from 2012, but Wayfair may lead the state to update its laws at any time. Moreover, federal laws currently are under consideration in Congress that may affect individual state laws. Therefore, you should consider periodically checking in with the California Board of Equalization to see if California’s rules have changed.