California Nexus Requirements for Out-of-State Businesses

California nexus requirements for out-of-state businesses come in two independent tracks: sales and use tax administered by the CDTFA, and income and franchise tax administered by the FTB. You can trigger one without the other. A physical footprint in California, sales over $500,000 into the state, a remote employee whose pay crosses an indexed threshold, or paid California referrers sending you more than $10,000 in business can each pull you into the tax system, and the thresholds don’t line up cleanly between the two agencies.

Physical Presence in California

Under Revenue and Taxation Code Section 6203, you’re a “retailer engaged in business in this state” if you maintain an office, warehouse, showroom, or other business location in California; have employees, sales representatives, or independent contractors working there; or store inventory in the state, including goods held at a third-party fulfillment center.1California Legislative Information. California Revenue and Taxation Code 6203 The presence doesn’t have to be permanent; even temporary or indirect use of a location qualifies.2California Department of Tax and Fee Administration. California Code Revenue and Taxation Code 6203 – Collection by Retailer

Two situations catch out-of-state businesses most often. First, a remote employee living in California: their physical presence counts as yours, even if your company has no office in the state. Second, Amazon FBA and similar fulfillment networks. If any of your inventory sits in a California warehouse at any point during the year, you have physical presence nexus for sales and use tax, regardless of whether you chose that warehouse or the fulfillment provider routed it there.

The $500,000 Sales Threshold

Section 6203(c)(4) requires any retailer whose total combined sales of tangible personal property delivered into California exceed $500,000 in the preceding or current calendar year to register with the CDTFA and collect use tax.3California Department of Tax and Fee Administration. Use Tax Collection Requirements Based on Sales into California

A few details on how the threshold is measured:

  • “Total combined sales” includes sales by the retailer and all related persons as defined under Internal Revenue Code Section 267(b).
  • All sales of tangible goods delivered in California count, whether taxable or exempt.
  • You count gross receipts, not just the taxable portion.
  • California has no separate transaction-count threshold; only the dollar amount matters.

Doing Business for Income and Franchise Tax

Sales tax nexus and income tax nexus are separate questions. Revenue and Taxation Code Section 23101 sets three independent triggers for “doing business” in California, and meeting any one of them subjects you to income or franchise tax:4California Legislative Information. California Revenue and Taxation Code 23101 – Doing Business

  • California sales exceed the indexed threshold, or 25% of your total sales, whichever is less.
  • Real or tangible personal property in California exceeds the indexed threshold, or 25% of your total property.
  • Compensation paid in California exceeds the indexed threshold, or 25% of your total payroll.

The statute sets base amounts of $500,000 for sales and $50,000 for property and payroll, but the Franchise Tax Board adjusts them annually. For the 2025 tax year, the sales threshold is $757,070, and the property and payroll thresholds are each $75,707.5Franchise Tax Board. Doing Business in California Check the FTB’s “Doing business in California” page for the current year’s numbers.

The payroll trigger is the one that surprises businesses that assumed they were safely under the sales threshold. One well-paid remote employee in California can put you over $75,707, and the tax that follows is 8.84% for C corporations or 1.5% for S corporations, plus the $800 minimum franchise tax.6Franchise Tax Board. Business Tax Rates

The $800 Minimum Franchise Tax

Any corporation incorporated, registered, or doing business in California owes $800 in minimum franchise tax each year, whether or not it earned a profit. It applies to C corporations, S corporations, LLCs, and limited partnerships. Newly incorporated or qualified corporations are exempt in their first taxable year, a rule in effect since January 1, 2020.7Franchise Tax Board. Corporations For most entities that establish new California nexus outside that carve-out, budget for the $800 from year one.

Click-Through and Affiliate Nexus

Section 6203(c)(5) creates click-through nexus when an out-of-state retailer pays a California resident or entity for referrals through a website link, and cumulative sales from those referrals exceed $10,000 in the preceding 12 months.2California Department of Tax and Fee Administration. California Code Revenue and Taxation Code 6203 – Collection by Retailer That’s the classic affiliate marketing pattern: a California blogger links to your product, you pay commission on referred sales, and if those sales top $10,000 over 12 months you have nexus.

The concept also reaches non-web arrangements. If California-based agents or related entities handle returns, warranty service, or customer support for your customers, those activities create a representative presence that pulls you into California tax jurisdiction.

Marketplace Facilitators and What They Don’t Cover

Since October 1, 2019, marketplace facilitators like Amazon, eBay, and Etsy have been responsible for collecting, reporting, and paying California sales tax on sales made through their platforms.8California Department of Tax and Fee Administration. Tax Guide for Marketplace Facilitator Act If you sell exclusively through a marketplace facilitator, you generally don’t need to register with the CDTFA for a seller’s permit.

Two catches. If you also make direct sales to California customers outside the marketplace, you must register separately and collect tax on those direct sales. And when calculating whether you’ve crossed the $500,000 economic nexus threshold, you must count all your California sales, including marketplace-facilitated ones. The facilitator collects on marketplace sales, but those sales still count toward your threshold for the direct-sale obligation.8California Department of Tax and Fee Administration. Tax Guide for Marketplace Facilitator Act

Trade Shows Are Not Automatic Nexus

Attending a California trade show doesn’t by itself create nexus, but the safe harbor is narrower than most businesses assume. Under Section 6203(e), a retailer whose only physical presence in California is convention or trade show activity avoids nexus if two conditions are both met: trade show presence doesn’t exceed 15 days in any 12-month period, and net income from those activities didn’t exceed $100,000 in the prior calendar year.2California Department of Tax and Fee Administration. California Code Revenue and Taxation Code 6203 – Collection by Retailer

Setup and teardown time doesn’t count toward the 15 days, but other business activities at the show site do.9California Department of Tax and Fee Administration. Sales and Use Tax Annotations – 175.0000 – Section: 175.0013 Attending Trade Shows—Pre and Post Activities Even if you stay within both limits, you still owe use tax on any tangible property actually sold at the show. The safe harbor blocks ongoing collection obligations on your future remote sales; it doesn’t make trade show sales themselves tax-free.

Registering With the CDTFA and FTB

If you have nexus, you’ll likely need to register with two agencies.

For sales and use tax, register with the CDTFA online by selecting “Register a New Business Activity.” The portal asks for your Federal Employer Identification Number, the date your California sales began, and details about your business activities. You’ll choose between a Seller’s Permit (for sales of tangible property) or a Certificate of Registration for Use Tax (for out-of-state retailers collecting use tax). Many applicants receive their permit immediately after submitting.10California Department of Tax and Fee Administration. Online Services – Registration11CA.gov. Apply for a Seller’s Permit The CDTFA assigns your filing frequency (monthly, quarterly, or annually) based on your expected taxable sales.

For income and franchise tax, register through the MyFTB portal using your California Corporation ID number, Secretary of State ID number, or Federal Employer Identification Number, depending on entity type.12Franchise Tax Board. What You Need to Register for MyFTB The FTB mails a PIN within five to seven days to complete the account setup.13California Franchise Tax Board. Create a MyFTB Account

What Non-Compliance Costs

If you had nexus and didn’t file, the FTB imposes a delinquent filing penalty of 5% of the tax due per month, up to 25%. A late payment penalty adds 5% of the unpaid tax plus another 0.5% for each month the payment stays outstanding, also capped at 25%.14California Franchise Tax Board. Penalty Reference Chart

If the FTB sends a notice demanding a return and you don’t respond within 60 days, the penalty jumps to 25% of the total tax assessed. Foreign corporations not qualified to do business in California that fail to file after a demand notice face a flat $2,000 penalty per tax year on top of everything else.14California Franchise Tax Board. Penalty Reference Chart

Interest runs on unpaid balances from the original due date. Without a voluntary disclosure agreement, the CDTFA can look back up to eight years for uncollected sales and use tax, and penalties and interest over that stretch can outweigh the underlying tax.

Voluntary Disclosure Before They Find You

Both agencies run voluntary disclosure programs that sharply reduce exposure if you come forward first. The two programs cover different taxes with different terms.

The CDTFA’s Out-of-State Voluntary Disclosure Program limits the lookback for unpaid use tax to three years, versus eight if the agency finds you, and waives late filing and late payment penalties. To qualify, you must be located outside California, never have registered with the CDTFA, not have been previously contacted by the agency, and show that your failure to file was due to reasonable cause rather than intentional disregard. You can contact the CDTFA’s Voluntary Disclosure Specialist anonymously for a preliminary opinion before committing. If you proceed, you register online and submit Form CDTFA-38 within 30 days of registration.15California Department of Tax and Fee Administration. Out-of-State Voluntary Disclosure Program

The FTB’s separate program covers corporate and franchise tax. You file returns going back six years, and the FTB waives penalties entirely. To qualify, you cannot have registered with the California Secretary of State, filed any California return previously, or received a notice to file.16Franchise Tax Board. Voluntary Compliance Programs

Both programs share the same timing rule: once the state contacts you, you’re disqualified.

What to Monitor

Nexus isn’t a one-time check. Sales volumes shift, you hire remote workers, your fulfillment provider moves inventory. Track these on an ongoing basis:

  • California sales, filtered by shipping address, including exempt sales, since both taxable and exempt count toward the $500,000 threshold.
  • Compensation paid to anyone working in California, remote employees included. One California hire can trigger the payroll threshold.
  • Inventory locations, with written confirmation from any third-party logistics provider about which states hold your goods and when. Document dates if inventory moved through California even briefly.
  • Cumulative sales driven by California-based referral partners, so you see click-through nexus coming before you cross $10,000.

Keep the records organized by quarter. When nexus is triggered mid-year, your obligation begins on the date you crossed the threshold, not at the start of the next filing period. Knowing exactly when California sales hit $500,000, or when your first California-based employee started work, determines your first required filing and the tax owed with it.