California Sales Tax Change
By. Tyler Willis and Kiely Holcomb
In April of 2019, California Governor Gavin Newsom signed a bill that drastically changed the required collection and filings of sales tax for California wineries. These changes will lead to increased tax revenue for California and more audits by the California Department of Tax and Fee Administration (“CDTFA”). If you are a California winery with over $500,000 of total sales per year, these new changes apply to you and it is important that you keep reading.
The Old Rule
Prior to April 2019, California law required that a business collect a district sales tax only if they were “doing business” in that district.
For example, a winery in Paso Robles who shipped wine to their wine club members located throughout California would charge the sales tax rate where the winery was located and not the sales tax rate for the address where the wine was delivered. So, the winery in Paso Robles who shipped wine to San Jose would not charge the San Jose sales tax rate, but rather the Paso Robles sales tax rate, because the winery was not “doing business” where the wine was delivered.
The New Rule
Starting in April 2019, any business with over $500,000 of total sales in California is required to collect, remit, and report sales tax based on the local district sales tax rate where the wine is shipped. The standard of “doing business” within other districts is no longer taken into consideration.
To continue with the example above, the winery in Paso Robles is now required to identify sales to other districts and charge the sales tax rate of that district rather than that of the winery where the wine was shipped from. So, the winery in Paso Robles who shipped wine to San Jose, must charge the San Jose sales tax rate, report that they made a sale to that district on their sales tax return, and remit the full sales tax collected to the CDTFA. (Now take the effort involved with that one sale and multiply it by the number of wine club members you have!)
This change was made retroactive to April 1, 2019.
What does this mean to me?
We feel this new sales tax change will have the most effect on winery wine clubs but will also need to be considered for wine that is purchased on a winery’s website or through other avenues and then shipped to a district that is different from where the winery is located. The new sales tax change does not apply to wines sold for resale (wholesale or distribution wines).
Under the new rule, wineries should be charging a fully loaded sales tax rate (state, district, local) to each wine club recipient based on where that wine is delivered. Those taxes need to be remitted and reported with the sales tax filing. Because this change is so new, many point of sale systems are unable to charge the right amount or generate a report that shows sales by district so that the sales tax return can be completed properly. We expect that in the near future, all point of sale systems will have this capability, but additional work may be required in the interim.
We recommend that you contact your current point of sale provider and inquire whether they have system updates to help with this change in law. If they do not, we advise you to inquire as to when their system will be updated and request to be notified when those changes are available. Because there are so many California wineries that this change impacts, software coders should be working hard to make sure they can offer this feature soon.
Even if your point of sale system does not have the capability of handling the new change in law, you should still be remitting and reporting based on the new rule. This may seem daunting if you have numerous wine club shipments and you may need some guidance or assistance to get started. We can work with you to take reports generated by your current point of sale system and turn them into a report that can be used to properly complete your sales tax return under the new change in law.
Contact someone from our wine team for more information.