As most people know that if a retailer sells an item in California, as well as in forty-four (44) other states, the retailer or consumer is subject to a sales tax. In most of the other 44 states the sales tax is imposed on the consumer, to wit the retailer would collect, but it is interesting to note that California is quite different.

In California, the way the sales tax statute is written is that “for the privilege of selling tangible personal property at retail a tax is hereby imposed upon all retailers . . . ”, thus the sales tax is legally and technically imposed on the retailer, but most retailers would pass the California sales tax onto the retailer. The reason why such a big difference is that if some reason the retailer cannot pay its back California sales taxes, because of its financial state, the retailer could discharge these back California sales taxes in bankruptcy. If the statue was written, like most states are, where that sales tax is imposed on the consumer, which the retailer collects and remits them to the state government, then is not a dischargeable in bankruptcy, because such a sales tax is a “trust-fund” type of tax, to which the federal bankruptcy code forbids the dischargeability of such a “trust-fund” type of tax.

In addition, of course, not all gross sales not subject to sales taxes. There are several exemptions to the sales taxes. One of the biggest exemptions is whole-selling. As the statute implies, is only sales at retail is subject to the sales tax. Thusly, if a business owner sells something to a wholesaler, then the sales tax is exempt, or not subject to, the sales tax. Another part of the sales tax statute is that “tangible personal property” is subject to the sales tax. So if the business owner is selling services, and not products, also is exempt from sales taxes. Finally, of course if a retailer/business owner sales something outside of California, that also I not subject to sales tax, because the recipient of the sale is not in California, and thusly California would not have jurisdiction or “nexus” to such a sale.

So if you are planning to go into business as a small retailer, bear in mind that in California, and/or in other 44 states, that there is a sales tax., and if you need how the sales tax operates in further detail, please contact us, and we would be more than happy to go over the sales, and what would be your compliance requirements.