Online Company in Oregon with California Employees

Technical topics regarding tax preparation.
#1
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I own a company that sells online products and services. My company is registered in Oregon so I do not have to charge and pay sales taxes. However, I hired employees who work from home in California. Would California claim that part of my business is also in California and I will have to pay California sales tax?
 

#2
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Dixiecorp wrote:My company is registered in Oregon so I do not have to charge and pay sales taxes.



This is a false statement. Sales taxes are based on a number of different factors. Where the company is registered has little to no bearing on the proper conclusion.
What kinds of products and services do you provide, where do you provide them, and where are the people doing the work located?
~Captcook
 

#3
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CaptCook wrote:
Dixiecorp wrote:My company is registered in Oregon so I do not have to charge and pay sales taxes.



This is a false statement. Sales taxes are based on a number of different factors. Where the company is registered has little to no bearing on the proper conclusion.
What kinds of products and services do you provide, where do you provide them, and where are the people doing the work located?


Office is located in Oregon. Product and services are sold worldwide. We have online promoters working from home in California.
 

#4
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What kinds of products and services do you provide?
~Captcook
 

#5
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CaptCook wrote:What kinds of products and services do you provide?


Online classes and classroom products like pens and pencils.
 

#6
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By virtue of having employees in CA, your company has a nexus in CA. You'll need to collect sales tax on the physical products you ship to customers in that state. Depending on volume under the Wayfair ruling, you may have nexus in other states.

I don't know right off-hand if online classes are subject to sales taxes in CA. In WA, they would not, but each state is different from that perspective.

Because you have nexus in CA, you also have an income tax filing and likely get the privilege of paying their $800 'privilege for doing business in our state' tax. but you're from OR which has it's own $150 PFDB tax. The amount will depend on your apportionment factor.
~Captcook
 

#7
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CaptCook wrote:By virtue of having employees in CA, your company has a nexus in CA. You'll need to collect sales tax on the physical products you ship to customers in that state. Depending on volume under the Wayfair ruling, you may have nexus in other states.

I don't know right off-hand if online classes are subject to sales taxes in CA. In WA, they would not, but each state is different from that perspective.

Because you have nexus in CA, you also have an income tax filing and likely get the privilege of paying their $800 'privilege for doing business in our state' tax. but you're from OR which has it's own $150 PFDB tax. The amount will depend on your apportionment factor.


Understood. Thank you for your help!
 

#8
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CaptCook wrote:I don't know right off-hand if online classes are subject to sales taxes in CA. In WA, they would not, but each state is different from that perspective.


CA is one of the most aggressive states in the country for taxes. I would be stunned if this somehow escaped sales tax/nexus with them. Even South Carolina, which is considered VERY moderate on taxes, would tax these items through online sales through physical presence test.

The original poster needs to be certain their client understands nexus and that physical presence is no longer the only factor, since other states have quickly been passing new regs based on the Wayfair decision. Also, that nexus extends beyond sales/use tax.
 

#9
makbo  
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CornerstoneCPA wrote:The original poster needs to be certain their client understands nexus and that physical presence is no longer the only factor, since other states have quickly been passing new regs based on the Wayfair decision. Also, that nexus extends beyond sales/use tax.

The OP appears to be the "client". I'm still scratching my head over "online products". If a tangible item is shipped and delivered, I don't think it matters whether you handled the order using U.S. mail or the internet or the telephone.
 

#10
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I missed that. Also, more and more states are finding ways of taxing non-tangible products, such as cloud software.

South Carolina, for example, used to allow cloud or downloaded software to bypass sales tax as long as you never received anything that contained physical media. They have since changed it and now require it to be taxed. Plenty of states are mulling over taxing services, such as those provided by accountants. Pretty certain we will reach a point where EVERYTHING is subject to sales/use tax.

As for orders (online or in-person), some states used to have exceptions that if orders were taken in one state, but not "approved and processed" in that state, then it escaped nexus. Example, I worked for a company that maintained a showroom in Atlanta, was based in South Carolina. Our employees were only present in Atlanta during two trade shows. None of the orders were "approved and processed" in Georgia, so we were just able to escape nexus since all orders had to go back to headquarters in SC for approval by sales and territory managers. Well, until we allowed an employee to relocate to GA, then we had to report to and pay GA for payroll, sales/use tax, and allocate gross revenue generated in the state since our employee also approved orders. Regardless, OP clearly has employees in CA. Not knowing CA law, but knowing how they are in general, you can be assured the OP is subject to basically all of CA's taxation.
 

#11
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I "bought" a roll of quarters at my neighborhood Wells Fargo branch bank and asked the very cute teller "How come there's no sales tax on my purchase of these quarters?" and she bristled at me, but not without a twinkle in her eye.
 


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