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Sales Tax in California

We are a manufacturer of waste water systems in Massachusetts, and we are buying materials for production of our system from California vendor and having shipped directly to customer site in California for final assembly and test. The vendor wants to charge us a sales tax. Should this be tax exempt and end customer will pay sales tax on final system price?

Answers

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Anon,

Gray area, and I see the CA vendor's problem. They are shipping to the end user, which for them triggers the responsibility to collect sales tax. If you were to have a CA address (same as the end user) and a resale certificate for that entity, then you could provide them with this information, releasing them from responsibility.

Some vendors permit separate "bill to" and "ship to" addresses. A discussion around this may help.

At the very least, being registered as a Foreign Corporation with the secretary of state, along with getting a BOE reseller certificate seem like the minimum required.

Cynthia (Helfert) de Hoog
Title: Assistant Financial Controller
Company: Microlease
(Assistant Financial Controller, Microlease) |

I disagree that this is a grey area. The CA vendor is required to collect sales tax if they ship to an end user. If they ship to a reseller, the reseller can register for a CA certificate and then the CA drop-shipper is no longer responsible for collecting the sales tax.

You can read more about it on Pub 121 from CA State Board of Equalization. https://www.boe.ca.gov/formspubs/pub121/.

Kristen Plaza
Title: Accounting
Company: Commercial Printer/Manufacturer
(Accounting, Commercial Printer/Manufacturer) |

I agree with Cynthia. Unless your company holds a CA Resale Permit, the California company is required to charge sales tax on t he item if it is delivering to a California address. We frequently encounter this question at my company as many of the businesses we deal with have their corporate offices or affiliates out of state but have items sent directly to a California address.

In our experience, most out of state companies like yours, do not choose to register for a Resale Permit but rather just pay the sales tax and pass the cost on to their customer because the CA sales tax reporting and filing requirements can be a real pain and inconvenience for someone who might have a drop ship like this once or twice. If this was going to be an ongoing occurrence, it might be worth your while to register for a Resale Permit here in CA.

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

Pay the sales tax! Your vendor is obligated to charge it.

Do you know what CA and MA have in common?

Both are known, aggressive sales tax states.

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