The Truth About CA AB 147 and the Impact on Amazon Sellers

Good Morning this is attorney Sam Brockman with Brotman law here at San Diego and the title of this video blog post is California a B 147 and its impact on Amazon sellers so I've been getting a lot of questions over the last two weeks about the proposed legislation in California which is California a B 147 and what it means for Amazon sellers and there has been a great amount of confusion with our current clients with some of the prospective clients that called us and then generally in the community about what the bill is and what it means so I finally had an opportunity to sell out last night and read through the whole bill and so I wanted to share some of my thoughts on what the bill proposes to do what it does not do and then the ultimate impact on the Amazon community as a whole so California a B 147 is a direct response by California to the Wayfarer decision and what that means is the very first thing that a B 147 does is it expands.

The concept of economic Nexus in reaction and in congruence with the wayfarer decision to encompass all sellers with that meet a certain economic Nexus threshold in California so the language of the bill says is any retailer with substantial Nexus for the purpose of the US Constitution so it basically includes a catch-all provision that says if you meet certain requirements for having Nexus in California then you will have you will have sales tax Nexus for the purpose of our state so what it really does is it codifies Wayfair into specific language that the CDT if they can point at when determining whether or not a seller has Nexus so in that's a very very very broad definition so within that definition there's a relief provision that will grow relief on the intrested penalties from April of this year until 2022 so California has subsequently expanded the concept of what it means to do business here and it has created a grace period for people to come into compliance now keep in mind that wave the Wayfarer case in general is dealing with a concept of company having Nexus in a state without having any physical presence here and under revenue and Taxation code sixty two of three here in California.

Amazon sellers are considered to have physical presence in California by lieu of the fact that they're holding inventory in California so even though a be 147 expands the concept Nexus it doesn't do anything to change 60 203 or the principle that Amazon sellers already have Nexus in California the second thing the bill does is it defines the concept of a marketplace facilitator which would be including Amazon and it obligates Amazon or any other marketplace facilitator to start collecting tax as a result of the transactions that it engages in so what that means for Amazon sellers is if I'm in California and I pour just a case of formula for my baby on Amazon and that product is shipped to me that Amazon will charge me tax based on Amazon's concept of Nexus in California and the sellers Nexus in California through their participation in the FDA program and the and I will remit the tax directly to Amazon Amazon will collect that tax never admit it to the state of California versus turning those monies over to the seller like it has done in the past so it puts an affirmative collection requirement on Amazon for taxes and it alleviates Amazon sellers of the requirement to collect taxes it does not alleviate sellers of the obligation to file sales tax return so if I was an Amazon seller and a be 147 came into effect essentially I would have registered with California and I would be filing sales tax returns listing my total sales and then.

I would get a credit for anything any monies that Amazon had collected, so for example let's say I run an online business I do a hundred thousand dollars in sales through Amazon and I do $100,000 in sales directly through my own website so through my storing of inventory in an Amazon warehouse I have nexus with California for all of my sins so all 200,000 of my sales are now taxable in California so when filling out my sales tax return I would list that I did two hundred thousand in total quarterly sales and I would calculate the amount of tax that I would owe on that two hundred thousand and then I would receive a corresponding credit which I would put down on my sales tax return which would offset the amount that I would have to pay the state of California so that's how it works it's it is even with the marketplace a lot of fact we've seen this in other states it doesn't alleviate the sellers of any filing obligation it just alleviates them with a collection obligation and California is doing that it's in order to maximize its tax revenue and I think that's one of the big mistakes about a beauty 1:47 is that people are looking at it as a bill that is friendly to Amazon sellers and really what it is is a bill that puts the state's interest first and then goes from there and what we can really see in that bill is we do see that because there's a couple things that a b-1 47 does not do so number one even though there is a grace period going forward from April 1st 2019 through December of 2022 there is no relief that is implied or granted or any sort of amnesty for any of the penalties and enter and sales tax prior to April of 2019 so there's not like there's been a situation where Amazon is going to start collecting taxes in April and.

The state of California is going to forget about all the past due taxes in fact the activity that we've seen from California is even with a b-1 47 coming into place California is continuing and starting at much more aggressive with respect to Amazon sellers who didn't comply with the letter with the January 15 deadline so what we're seeing now the trend is is California is sending in a second set of letters and will soon be forced registering people in California and issuing assessments based on what they think their sales are so even with the passage of a B 147 the CDT FA is not deterred in going after Amazon sellers for the periods of sales that they did not collect tax on there is some relief built in to see DTF a procedure to either get relief on the penalty portion of the liability and or some of the interest depending on whether you go through the managed auto platform or some other means of compliance but but those paths exist because they already exist there's nothing new that's being created out of the legislation that would seek to help Amazon sellers so unfortunately for the people who aren't registered in California you're gonna have to come into compliance California is not simply going to forget about you and as time passes and California gets more and more aggressive in this platform the actions that California is going to take are going to be more and more severe so even with that said there is still a need to do something with respect to California and then with California as kind of a leader in this legislation you can expect a lot of the other states to adopt a similar method of compliance.

We're seeing more and more sellers or more and more states pass economic Nexus laws in response to wave fear that kind of codified Wayfarers threshold and we're seeing more and more starting to adapt marketplace laws that put the burden on Amazon in terms of tax collection doesn't alleviate the filing requirement just to alleviate the collection requirement so those are really really important and in terms of managing your businesses on Amazon you can kind of look at this as this is the way that the game is changing so it is very very important to understand that coming into compliance is necessity you can't afford to sit on the sidelines and wait passively and hope that the states are going to offer search any sort of amnesty because what we've seen and what the pattern is is the states are not offering amnesty and so that's really important in running and managing your businesses and thinking about the businesses revenue stream going forward is you're gonna have to find a way to come into compliance as painful as it may be with some of the states the reality of the situation is it does not have to be that painful there's a variety of things that you can do to bring yourself at compliance that doesn't involve registering in all 50 states and paying back these back to sales taxes on every single dollar that you sold in the state that you didn't collect but it really depends on the individual facts and circumstances of those liabilities so I really want to encourage you guys as more and more legislation comes out and I will continue to post updates as a b-1 47 comes out of the Tax Committee and gets amended and ultimately through its final passage but.

I want to encourage people to really take a look at this issue to really think about their compliance burdens and their obligations and running their businesses to make sure that they're doing the responsible thing for their business this is an issue that's not going to go away as much as we would all like it to and it's an issue that at least from a legislative perspective it doesn't seem like there's going to be a legislative Avenue for relief for Amazon sellers so again if you if you'd like to speak with me I know several people who watched our videos and have called us for consults more than happy to help out and we're happy to go through your specific situation dive into some of the numbers and kind of go from there alternatively you know if you don't want to talk to us for whatever reason I do recommend that you go out and get help to talk to a multi-state CPA talk to somebody with knowledge of california tax procedure there are lots of good practitioners in California who know how the CDTI operates and what they're doing talk to those people get informed decisions speak with people who have California specific experience and it can help you in guiding and dealing with that that's what I would really encourage it's important to have the right person in the right seat giving you advice on this particular issue you know and again it this is very important it's not going to go away so if you have any questions you know or you're need guidance on this issue we have a ton of website materials on our website which is WWF prop and calm you can check out our other videos for some some explanations that I've given in the past and we're going to be start publishing some more materials and some guides to get people through on some of these issues and explain you know in the nuts and bolts how this process works so again and you're always welcome to call us our phone number is six one nine three seven eight three one three eight or you can reach out to us through the Office of San Brotman comm so thank you for watching this video today I really appreciate a lot of the feedback I've gotten I'm happy to continue to share knowledge and be a resource on this issue so thank you so much I look forward to hopefully speaking with you soon and I hope you found this very informative anyway talk to you later.


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law