California Legislature Approves New Law, Amazon Sellers Still Liable for Past California Sales and Use Taxes
BREAKING NEWS – Today, the California State Assembly passed the Marketplace Facilitator Act, also known as AB 147. The bill makes Amazon and other marketplaces responsible for registration and collection of sales taxes on behalf of the Amazon sellers that they service. The governor of California, Gavin Newsome, has already come out in support of this bill and his signature and its passage into law seems to be merely a formality. Effectively, this legislation will shift the future burden of registration and tax collection in the future, from small marketplace sellers to larger organizations in order to not unduly burden them with filing and collections obligations. This is a relief to many small sellers, who were worried about continued registration and filing requirements in California.
Going forward, as of April 1, 2019, any retailer with more than $500,000 in previous year or current year sales in California will be required to register with the California Department of Tax and Fee Administration (“CDTFA”) and to collect and remit sales/use taxes. Those under $500,000 in past or current year will not have a forward looking registration requirement.
The legislation also allows CDTFA the option of allowing the abatement of interest and penalties for failing to timely file, make a payment, or negligence/intentional disregard cases when a retailer has less than one million dollars in sales in the preceding 12 months and where the failure to collect tax is the result of a good faith error. We note that the requirements for penalty and interest abatement have not been defined by CDTFA, although they are reasonably expected to follow the existing CDTFA protocols.
However, although the bill does lower the compliance burdens in the future for small Amazon sellers, much more noteworthy is that the relief provisions or any of the changes incorporated in the bill do not have any retroactive effect. More specifically, the legislature declined to offer any relief to Amazon sellers who failed to collect and remit past tax. Many sellers had hoped that the legislature or the governor would adopt the position advocated for by California State Treasurer, Fiona Ma, and that a form of tax amnesty would be granted for those sellers who inadvertently failed to register or remit tax in California.
Although it is possible that the governor could veto the bill and request the legislature put in these provisions, after more than six weeks of discussion by the state legislature, we believe such a move is extremely unlikely, especially since the governor has already come out in support of the bill. As a result, today’s bill is as much a victory for Amazon as it is for its sellers, as the bill effectively removes responsibility for past due sales taxes from Amazon and puts the burden on sellers instead.
Based on the recent CDTFA enforcement efforts, it is expected that Amazon sellers that were contacted by the December 2018 enforcement effort will be ultimately required to register and to remit past due tax. Out of state sellers who do not comply with CDTFA’s demands for registration will likely face forced registration and assessments. If California’s demands continue to be ignored, CDTFA could reasonably resort to collection action, which could include the state levying seller accounts, merchant accounts, bank accounts, and other assets held by out of state sellers.
With the legislation expected to be signed within twelve days, we encourage Amazon sellers who have not taken effort to become compliant in California to explore their options for doing so. Now that the law has been settled, it is expected that CDTFA’s collection efforts will continue against Amazons sellers and that those who do not register with California will ultimately be forced to comply. Now that the California legislature has spoken, only a judicial intervention would be able to make a change in the above rules. Reasonably speaking, such a process could take years to resolve in the courts with no guarantee of the outcome being resolved favorably for Amazon sellers.
Rather, we encourage companies to be proactive in dealing with any potential liabilities and to also consider their exposure in other states as well. Although California is not the first state to pass marketplace facilitator statutes, we reasonably expect that other states will follow California’s lead and will similarly not offer amnesty for Amazon seller’s past mistakes. This approach is consistent with past amnesty offered under the MTC’s voluntary disclosure program (http://www.mtc.gov/Nexus-Program/Multistate-Voluntary-Disclosure-Program) and is in line with the voluntary disclosure programs of most states.
For more information about the new legislation or for any questions that you may have about your individual situation, please do not hesitate to contact our office at (619) 378-3138 or at firstname.lastname@example.org. Our staff is always here to answer questions or to otherwise help facilitate a consultation. We will be updating this post as more information becomes available.