California economic nexus threshold

Affiliate nexus

California's standalone affiliate nexus and click-through nexus provisions under RTC §6203(c)(4)-(c)(5) were repealed effective April 1, 2019, by Assembly Bill 147. No independent affiliate nexus statute is currently in effect in California.

However, the related-persons aggregation rule under the $500,000 threshold remains operative. Sales made by related persons as defined under IRC §267(b) — including parent/subsidiary relationships and brother-sister corporations with 50% or more common ownership — must be combined when calculating whether the threshold is met. Corporate group structures cannot be used to disaggregate sales and remain below the $500,000 level.

AB 147 also includes a contingency clause: if a court determines that the $500,000 standard violates the Commerce Clause, the prior click-through and affiliate nexus provisions automatically reactivate.

Physical nexus

A retailer is "engaged in business" in California, and therefore subject to sales and use tax collection obligations, under RTC §6203(c)(1)-(c)(3) if it maintains any of the following in the state: an office, place of distribution, sales or sample room, warehouse, storage place, or other place of business; any representative, agent, salesperson, independent contractor, or solicitor operating in California; leased equipment, including a computer server, located in California; or tangible or real property owned or leased in the state.

Temporary employee visits for sales calls, training, or technical support can create nexus under this standard. A telecommuting employee working from a personal home that is not held out as a business location and involves no customer contact generally does not create nexus under California's published guidance.

California applies a "unity of entity" principle: if any division of a legal entity has physical nexus in California, the entire legal entity is subject to the collection obligation.

A limited convention and trade show safe harbor applies when a business's sole California presence consists of attending conventions or trade shows: the business must participate no more than 15 days in any 12-month period and must have earned less than $100,000 in net income from California activities in the prior calendar year.

Trailing nexus

California has a formal, codified trailing nexus rule under Regulation 1684 and Regulation 1827. A business that had nexus in a given calendar year — whether through physical presence or by meeting the $500,000 economic nexus threshold — must continue collecting and remitting California use tax through December 31 of the following year, even if all nexus-creating activities ceased on January 1 of that following year.