The Good and Bad News for Amazon Sellers

Hi I'm Sam Brotman herewith Brotman law in San Diego and this blog post is the good and bad news for Amazon salaries so it's been any of you got the email and our where California has issued a formal legal demand Amazon and tomorrow Amazon will be turning over its seller information to the state of California so that California can go back and potentially go after people who have not been collecting and remitting sales tax in California so since this email came out last week we've spoken with a number of Amazon sellers and I've done a number of consulates with people kind of giving them you know the advice that we would give them at a consult based on their particular situation and a lot of the things that come out of those consults are some misconceptions and some misinformation surrounding this process so I wouldn't take the opportunity to get on with you today and to address a lot of these things because I think they're important and.

I think that there's a lot of misinformation floating around there that is affecting people's judgement so to the extent that we can remedy some of this misinformation people will hopefully take some actions that are positive and constructive towards this problem so let's start with the good news because whenever you're gonna give bad news to somebody it's always helpful to give them a very good news first so piece of good news this program is totally fixable it's something that you can if address proactively and if you do it relatively soon because the timing of all this you can protect your Amazon sales business and in a lot of these cases that we see and our firm has probably done 50 or 60 of these Amazon cases over.

The last several years all of these businesses for the most part have survived this so even though this seems like an astronomical problem and there's a lot of fear and there's a lot of panic surrounding this issue I want to assure you that with some proper planning and with some proper guidance and with some decisive action you too can address this problem, because I know it seemed to be you know very very large and there's a lot of information around this and I apologize in advance if this video is a little bit information heavy but I just want to make sure that everybody has access to the same facts so first I want to start with the beginning of this whole conflict and what I will say is if you stick around with me to the end of this video that will give you some good practical advice on how to deal with the situation and let you know what the first steps are so stick with me as I explain this so California and Amazon got into a very very public fight in kind of around the 2009/2010 here and when it ended up in is it ended up in a lawsuit and California actually lost that lawsuit and so California being the sore losers that they are sometimes the California Legislature put something out called the what's lovingly referred to as.

The Amazon sales tax law and essentially what this did is increase the definition of doing business in California to include certain activities and one of those activities was holding inventory in California whether directly or through a third-party agent so as of the end of 2013 Amazon sellers were considered having Nexus in California by Lou the fact that they were holding inventory through Amazon's FBA platform and that Nexus extends whether or not the seller was aware of it or not because I know what the common complaint is in the seller community is that we shipped on this product to Amazon and Amazon just kind of loops it around their warehouses as they see fit and we had no idea that this was gonna happen California unfortunately doesn't make that distinction and so it's pursuing sellers in light of that fact so the bad news is with respect to this is that for most sellers who have been operating since late 2013 or whenever you've been operating you have presumably had Nexus in California and California has been very aggressive on this body California has been kind of leading the charge with the number of states because California needs revenue and so California realized that one of its biggest revenue deficiencies was people who are operating outside the state of California so California has set up an out of state compliance division and is really aggressively pursuing out of state people not just Amazon sellers but out-of-state people in general who have some sort of Nexus to contact with California and this has been a real hard marker of my practice over.

The last three or four years is we've seen more and more cases of people intentionally stepping into California either from a sales tax perspective or a state income tax perspective and California going after them and so we've had to defend a number of out-of-state companies in this area so the bad news is is that the companies ignorance of the law is not viewed as a valid reason for non-compliance so once you are established having Nexus inside the state of California there are consequences from a sales tax perspective and there are also consequences from a state income tax perspective see but because by lieu of California opening up the definition of doing business in the state it's equivalent to you having a branch office in California so this is a big problem obviously because a lot of people have been selling through the Amazon and not aware that they have been creating Nexus with California you know on top of all that Amazon doesn't really help people out very much unfortunately you know if you have an Amazon sellers account you may get a deposit you know every two weeks with all the sales that you've done and that deposit is just a lump sum with all the Amazon fees being taken out so a lot of people assumed improperly that Amazon was taking taxes and remitting taxes out of those and that's simply not the case Amazon doesn't have an obligation at least in California to do that and it wasn't doing that.

So Amazon essentially created this mess where they created a nexus in California and a variety of different places and have obligated their sellers to that but I've not been admitting the tax so California is unfortunately not offering any sort of reprieve they are offering a little bit of a break through the traditional platforms that they've had in California one is called the voluntary compliance program and one is called the managed audit program the voluntary compliance program generally has a three-year look-back window that would forgive all the penalties and manage Daud it will also forgive the penalties and it's a two-year window so I would go in a little bit more explanation on what those two programs are about but I don't want to confuse people and whether or not you qualify for one program the other kind of depends on the facts of your case but just be aware that there are ways to limit your liability perhaps a certain amount of point of time in California the other problem is is that this problem is not really limited to California there have been a number of states that have put tremendous pressure on Amazon most recently new jersey and amazon entered into agreement where amazon is going to be collecting all.

The tax on behalf of new jersey sellers and so on new jersey sales and so this is a really important thing because a lot of people are operating the deception that well this problem will get fixed or corrected and they don't really have to do anything if they just wait it out unfortunately the problem is is that we have a Supreme Court case called wafer versus South Dakota which many of you are familiar with and Wayfair has kind of blessed the concept of economic Nexus it's not a threshold blessing it just blesses the concept in general so you don't have to engage in a certain amount of economic threshold like the South Dakota law a lot of people are operating under the assumption any minimum contacts with the state because the states are able to operate and regulate businesses that operate in their state any operation within that state is controlled by the state and unless there is a conflict or a federal law that would oversee that the states kind of free to do what it wants and the Supreme Court could have blessing on that so the Supreme Court's ruling in Wayfair which blesses the concept of economic Nexus is now the law of the land an absent a judicial or a legislative intervention in this area and the states are kind of free to do what they want so wafer didn't speak to the idea of retroactivity that the states couldn't go back and do this a wave fear didn't put any limits on this so the problem is is that while some states have taken legislative measures Washington state adopted the marketplace sellers act a number of others just about five or six.

That have put pressure on Amazon to collect their taxes a lot of states haven't done this you know in California for example and none of where any current proposals that would put Marketplace Fairness or something like that in line I'm also not aware of anything that would prohibit California from going back retroactively Lee so from a legislative standpoint there's just not a lot there and Congress our federal Congress doesn't seem particularly apt to act in this area and in spite of some discussion after the wafer case problem number two is that usually when there's a judicial decision from a Supreme Court standpoint there will be a number of companion cases that will kind of come through and you know help kind of craft the courts position so the Supreme Court will swing the pendulum one way and then there'll be some companion cases that kind of dial it back a little bit unfortunately there's not a lot of companion cases that really address this issue that are that far along at least that will impact sellers on an immediate basis so for leaves for the foreseeable future the next you know couple of years this data still remains a very serious issue and there's nothing that is out there to kind of protect the sellers from California or you know any of the other states going after them and I want to be really clear here even the email that everybody got is with respect to California the problem is is this isn't just limited to California Amazon's distribution of inventory through.

The FBA platform has created Nexus for people in a variety of states and which states cap and amazon has created Nexus for you it depends on what you're selling it depends on your sales volume as a seller and where your customers are located and so unfortunately you know the problem is is that a lot of people are now have Nexus and other stays unwillingly and California even though they're at the forefront of being aggressive it doesn't mean that the other states have fallen I'm not going to follow suit some states for example Washington has been particularly aggressive in this area and going back against out-of-state sellers and hasn't offered any sort of amnesty so it's really important to know that this problem even though we all became aware of it through California's action actually is is a problem across days and a lot of Amazon sellers think well you know I'm a New York company or I'm a Kentucky company or Florida company I don't really have any exposure here but the problem is is you're thinking about yourself as well California can't touch me because I'm in state I'm in one state or you know I'm a New York company the problem is that I want to encourage people to think like this you're actually not a New York company or a Florida company or wherever you located you're a multi-state entity because like.

I said earlier the amazons policy of putting inventory in various warehouses has essentially availed you to potentially Nexus in every state that can Amazon has a warehouse which is really scary so you need to start thinking about yourself as a multi-state corporation furthermore even if you're located in another state yes it from a resource standpoint it is unlikely that California will come into your state pursue a judgment against you unless your potential liability you know or in the millions but they can and much easier than going into your home state and pursuing a judgment is a variety of different financial institutions and Amazon itself have Nexus with the state of California so California by virtue of getting seller information by collecting by making an assessment whatever that assessment is if you don't respond to the notices that you receive they'll just make an assessment anyway and then once that assessment is on the books they can take collection action they can go after your bank if your bank has Nexus in California they can go after Amazon and whether your Amazon account receivables so just because you're located in a different state doesn't mean that they can't pursue this against you and that's really important to think about the problem is even worse for international sellers because international sellers may have some sort of treaty exemption with the United States on the federal level so for example if you're an Amazon seller in either Canada or Mexico you have an exemption under NAFTA or as long as you have us source income but don't maintain a physical presence.

The United States you don't have to file a federal tax return the problem is is Amazon and the state's viewing you as having physical presence by virtue of you have an inventory may compromise your treaty exemptions and this is just from Mexico and California but there's another other countries as well and Amazon seller is located in other countries whether in Asia or Europe or wherever there there are potential significant tax consequences with this because you may potentially have us source income the nice thing from an from an international sellers perspective is your personal assets are really aren't risk because you don't have a lot of concern the California is gonna cross the border and you know take your home in Mexico or Canada or wherever but the issue is you still have some level of contact with United staes at least on a minimal level you sell through a mist and California can always let levy Amazon so this could either be potentially a nuisance or it could be a major disruption depending on what's going on with your business so and again all these there's sort of fact-specific you know I'm telling you this just to put the information out there from a good news standpoint because.

I want to end on some good news from a good news standpoint there are ways that you can protect yourself the very first thing that I help clients do want a very broad SATs is understanding the fact that California has already caught you because they have it's only a matter of time before they run your EIN and those of the other Amazon sellers and 17 against the ein s4 people who file in California and start sending on log notices or these compliance notices so you already have been caught let's just make that really clear so given the fact that you can't change anything that's happened in the past the idea that we approaches a law firm is in trying to minimize your exposure for the conduct that's happened in the past we do that through a variety of different methods and then moving so that going forward you can operate in the safest possible landscape and that yes that does mean getting into compliance in California or in potentially some other states that you have risk yet but from a compliance standpoint if you're able to get into compliance and curtail your future viability you also limit your exposure to other states potentially finding out about you and your activities so by protecting yourself now prior to this problem going increasingly bigger than the states getting more information about you in the state's getting more sophisticated in their enforcement efforts you are at a golden opportunity because you can protect yourself right this second and that's really really important is it's not too late to do something about this problem and there's no advantage of waiting for this problem to get worse because as you move further along and process and maybe you're no longer dealing with a compliance represent.

If you're dealing with an auditor this problem gets progressively worse so for those people who can be proactive and really get this out here ahead of time there are ways to minimize your exposure and amou it to limit the amount that you're gonna owe and to protect yourself and one of the most important concepts I want to impress upon you as it may not just be your business assets that are risk depending on the situation it may also be your personal assets that are at stake here so there are things that you're gonna want to do to protect your company as well as protect you as the principal shareholder and potentially on any other exposure that you may have and again that's this is all very fact-specific but I want to impress upon you that this might be a problem that goes just beyond your business because there is shareholder and responsible party liability in California as well as in another's and then a number of other states so I want you to talk to talk to somebody I want you to talk to either somebody who has experience in multi-state taxation you have a good multi-state.

CPA multi-state CPA is not the person who prepares your individual or corporate income tax returns they are somebody who does this quite frequently or you're more than welcome to speak with me or another tax attorney about this problem because there's a few of us and there's only a handful of us who really understand this area of law because sales tax is so complicated and you are going to want to make sure that you could help or guidance you know what I tell prospective clients is I don't like to make decisions for people I like to give people enough information to facilitate their own decisions and so that's how we work as you know a client relationship standpoint is we want to give people a tour these decision-makers in whatever particular company whether it's you or you and a partner or you know if there are multiple people or if you have officers or whatever we want to give you as much information as possible so that you can make the best decisions for your company because ultimately these this is an illegal decision it really comes down to being a business decision and you want to make the best business decisions as the owners and if the shareholders your company to guide the company going forward and protect your business and protect your revenue stream and ultimately protect your family from the situation so if you have any further questions please reach out to us our email address is law office at San Brockman comm you can also go to our website wwsz improvement comm there's a lot of information on there as well as our phone number which is six one nine three seven eight three one three eight and please feel free to book a consultation or asks any questions we'd be happy to dive into this further so until next time this is Sam Brockman here in San Diego signing off and I hope you guys have a good day and we'll talk to you soon thanks so much .


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law