A business with no physical presence in California must register with the California Department of Tax and Fee Administration (CDTFA) and collect tax once its sales of tangible personal property for delivery into California exceed $500,000 in the current or preceding calendar year. There is no transaction-count test. A business with a physical presence in California must register regardless of sales volume.
Two points trip up sellers. First, the $500,000 test counts total sales of tangible personal property, including non-taxable sales such as sales for resale, but it does not count charges for services, so a SaaS company's subscription revenue does not count toward it. Second, liability runs from the date nexus was established, not from the date you registered, so a late registration carries back tax, interest and penalties.
This guide covers what triggers nexus in California, how to register, what rate to charge, filing and penalties, the marketplace rules, the SaaS position, and the separate income-tax "doing business" test. For how California compares with other states, see the SaaS sales tax by state reference and the SaaS sales tax guide.
What sales tax nexus means in California
Nexus is the connection between a business and California that lets the state require the business to register, collect and remit sales or use tax. California recognises two routes:
- Physical nexus: a physical presence in the state.
- Economic nexus: exceeding the sales threshold, with no physical presence.
Either creates the obligation on its own. Sales tax nexus is separate from income tax nexus and from payroll tax obligations, each of which has its own test.
The economic nexus threshold
Under Revenue and Taxation Code §6203 as amended by Assembly Bill 147 (April 25, 2019), a retailer is engaged in business in California if, in the preceding or current calendar year, its total combined sales of tangible personal property for delivery in California exceed $500,000. The rule applies to sales made on or after April 1, 2019 (CDTFA Wayfair guide).
What counts, per the CDTFA's FAQ:
- All sales of tangible personal property, taxable and non-taxable, including sales for resale.
- Sales by related persons are combined with yours.
- Sales through a marketplace count toward your total, even where the marketplace facilitator collects the tax.
- Charges for services do not count unless they are part of a sale of tangible personal property. SaaS, consulting and similar service revenue is excluded.
There is no transaction threshold. Once you exceed $500,000, you must register and begin collecting on your next sale for delivery into California.
Not sure whether you have crossed the threshold? Talk to a Taxolio specialist to confirm your nexus position.
Physical nexus
A physical presence creates nexus regardless of revenue (CDTFA Publication 109). Common triggers:
- an office, warehouse or other place of business in California;
- employees, agents or representatives operating in California, including a remote employee working from home;
- inventory stored in California, including in third-party fulfilment centres;
- leasing a computer server located in California; and
- convention or trade show activity beyond the safe harbour in Revenue and Taxation Code §6203(d): you are not engaged in business solely because of trade show activity if it totals 15 days or less in a 12-month period and produced no more than $100,000 of net income in the prior calendar year, but you must still collect tax on sales made at the show.
Registering for a California seller's permit
Register through CDTFA Online Services:
- Select "Register a New Business Activity".
- Enter your business type, ownership structure and contact details.
- Provide your SSN or federal EIN.
- List any California business locations.
- Submit; your seller's permit number is issued on approval.
Register before your first taxable sale after crossing the threshold or establishing physical presence. CDTFA assigns a filing frequency (monthly, quarterly or annual) based on expected tax liability.
Rates: destination-based, with district taxes
California sources sales to the delivery address. The statewide rate is 7.25%; district taxes of 0.10% to 2.00% apply in many areas, and some addresses fall in more than one district. Use the CDTFA address-based rate lookup for each order rather than a ZIP-code or flat statewide rate.
Exempt sales and certificates
Common non-taxable categories include sales for resale (with a valid resale certificate), most food products for home consumption, and prescription medicines. There is no general exemption for sales to or by non-profit organisations in California; a non-profit's purchases are generally taxable unless a specific statutory exemption applies (CDTFA Publication 18). When a buyer claims resale, verify the permit with the CDTFA verification tool and keep the certificate. Without it, the sale is taxable to you under audit.
Filing, due dates and penalties
Returns are filed through CDTFA Online Services on the assigned frequency; the due date is the last day of the month following the period. A return is required for every period, including periods with no California sales.
Late payments carry a 10% penalty plus interest. Where nexus existed before registration, CDTFA assesses tax, interest and penalties from the date nexus began. Keep records, including exemption certificates, for at least four years.
Marketplaces, SaaS and digital products
Marketplace facilitators
Under the Marketplace Facilitator Act, a marketplace facilitator whose total combined sales into California exceed $500,000 is the retailer for sales it facilitates and collects the tax. Your own direct sales remain your responsibility, and marketplace sales still count toward your threshold.
Is SaaS taxable in California?
No, where nothing tangible is transferred. Under CDTFA Regulation 1502, the transfer of a prewritten program by remote telecommunications with no tangible personal property transferred to the customer is not a taxable sale, and remote access to a computer is not a taxable lease. Two consequences for SaaS companies:
- Pure SaaS subscriptions are not subject to California sales tax, and collecting tax on them creates a refund problem rather than compliance.
- SaaS revenue does not count toward the $500,000 economic nexus threshold, because the threshold measures sales of tangible personal property. A SaaS company can have millions of dollars of California customers and no sales tax nexus, unless it has a physical presence or also sells tangible goods.
Bundles that include hardware, media or other tangible items, and software delivered on physical media, are analysed differently. Get a product-level determination before deciding either way.
Income tax nexus and the $800 minimum franchise tax
California's Franchise Tax Board applies a separate "doing business" test for income and franchise tax. For the 2025 tax year an entity is doing business in California if its California sales exceed $757,070 or 25% of its total sales (2024: $735,019), or if property or payroll thresholds are met; the figures are indexed annually. Unlike the sales tax test, this counts service revenue, so a SaaS company with no sales tax nexus can still have California income tax obligations. Every corporation or LLC doing business in California also owes the $800 minimum franchise tax each year.
Audit preparation
CDTFA audits typically compare reported sales with platform and accounting data, examine the ratio of exempt to total sales, and review filing history. Before a notice arrives:
- Keep a complete audit file: invoices, purchase records, exemption certificates and shipping documentation.
- Reconcile reported sales with accounting records and platform data each quarter.
- Retain records for at least four years.
If you receive an audit notice, respond within the deadline, provide what is requested, and involve a sales tax specialist before the audit begins.
Checklist
- ☐ Total your current and prior year California sales of tangible personal property across all channels, including marketplace and non-taxable sales
- ☐ Exclude service revenue (including SaaS) from that total
- ☐ Compare the total with the $500,000 threshold
- ☐ Check for physical presence: employees, inventory, offices, servers, trade shows beyond the safe harbour
- ☐ Register with CDTFA if either test is met
- ☐ Confirm your assigned filing frequency and first due date
- ☐ Set up address-level rate calculation for California orders
- ☐ Confirm product taxability per item before collecting
- ☐ Obtain and verify resale certificates before completing exempt sales
- ☐ Store certificates and invoices for at least four years
- ☐ Confirm whether your marketplace facilitator collects on your California sales
- ☐ File returns for every period, including zero returns
- ☐ Check the FTB doing-business thresholds separately
The threshold is measured against the current and preceding calendar year, so a review each quarter is enough to catch a mid-year crossing.
Need California registered, filed and kept current? Taxolio handles nexus reviews, CDTFA registrations and ongoing filings for SaaS and ecommerce businesses selling across states, with a person reviewing each return. Talk to a specialist.