California sales tax nexus: the $500,000 rule, explained.

Since 1 April 2019, under Assembly Bill 147 and Revenue and Taxation Code (RTC) section 6203, a retailer is "engaged in business" in California if, in the preceding or current calendar year, the total combined sales of tangible personal property for delivery in California by the retailer and all persons related to the retailer exceed $500,000. A related person is one with a relationship described in Internal Revenue Code section 267(b) — broadly, related companies and family relationships — so group structures cannot split sales across entities to stay under the line.

Three features of the test catch sellers out:

1. Nontaxable sales count

The measure is total sales of tangible personal property, not taxable sales. CDTFA states the threshold may be met with nontaxable sales "such as sales for resale", and its own worked example treats a seller with $300,000 of sales for resale and $300,000 of retail sales in a calendar year as engaged in business, because the $600,000 total exceeds $500,000. Exempt goods count the same way. (One relief: a distributor that makes no retail sales into California at all does not have to register purely because wholesale volume passes $500,000 — the duty to collect attaches once it makes any retail sale.)

2. Marketplace sales count — toward your threshold

Under the Marketplace Facilitator Act (also part of AB 147, in force from 1 October 2019), a marketplace facilitator is treated as the retailer for sales it facilitates and is responsible for collecting, reporting and paying the tax on them. As a marketplace seller you are no longer the retailer of facilitated sales, and if all your retail sales run through a registered facilitator you do not need to register yourself. But CDTFA is explicit that, to test your own economic nexus, "you must include all sales of tangible merchandise for delivery in this state, including sales made on your own behalf and those of related persons, as well as sales facilitated through a marketplace facilitator's marketplace". Amazon collecting the tax does not stop those dollars pushing you over the line for your own direct channel. If you are registered, you still report total sales on your return and claim a deduction for the facilitated sales.

3. There is no transaction-count test

Unlike the original South Dakota formula, California has a single dollar trigger. A handful of very large orders can create nexus; thousands of small ones below $500,000 cannot.

The window is the preceding or current calendar year — not a rolling twelve months. Two consequences follow. First, if last year's California sales exceeded $500,000, you are engaged in business for the whole of this year. Second, crossing mid-year triggers the duty immediately: CDTFA's example seller reached $499,000 by 30 June, then made three July sales taking the total to $500,200 on 7 July, and "was required to register with CDTFA on July 7" and collect from that point. The seller was not liable for tax on the sales delivered before crossing — including the sale that crossed the threshold — but every sale after it needed tax collected.

Because the test looks at the current year as it builds, a seller having a breakout fourth quarter can cross in December with no warning from last year's figures. That is the argument for monitoring monthly rather than checking once a year.

The $500,000 test is only the economic route. RTC section 6203 also treats you as engaged in business if you maintain, occupy or use an office, place of distribution, sales room, warehouse or storage place in California; have representatives, agents or independent contractors operating in the state to sell, take orders, deliver, install or assemble; receive rentals from leases of property located in California; or own or lease real or personal property — CDTFA's guides give machinery, equipment and computer servers as examples.

The practical trap is fulfilment inventory. CDTFA's Marketplace Facilitator Act guide lists "maintaining inventory in California" as a sufficient physical presence, and notes that a third party's California warehouse or fulfilment centre may be considered your place of business where there is dedicated storage for your merchandise. In plain terms: stock sitting in a California fulfilment centre — FBA or otherwise — can give you nexus from the first dollar, long before the $500,000 test matters, and can also oblige you to hold a seller's permit for the storage location.

• California Department of Tax and Fee Administration — Use Tax Collection Requirements Based on Sales into California Due to the Wayfair Decision: FAQs
• California Department of Tax and Fee Administration — Tax Guide for the Marketplace Facilitator Act
• California Revenue and Taxation Code, section 6203 (Business Taxes Law Guide)

This guide is general information about California sales tax nexus, not tax, legal or accounting advice for your situation. Tax rules change — verify with the CDTFA or your tax adviser before registering. Last verified: 21 October 2026.