What Amazon sellers should do with California's formal legal demand to Amazon

Hi this is attorney Sam Brockman here with Robin law in San Diego and we're doing a special video blog post in order to advise Amazon sellers about what to do with the recent information that California has issued a formal legal demand to Amazon so first a little bit of background about me and our firm we're located in San Diego California and we focus on state specific tax issues and more specifically over the last few years we've been helping Amazon sellers and other online sellers get into compliance with the myriad of state and local sales tax laws and state income tax laws that have affected sellers many people have heard about the recent decision in Wayfarer where the court basically blessed South Dakota's law of allowing an economic Nexus as opposed to the traditional physical presence test and the significance of this is that it opened the door for California and another number of other jurisdictions who had laws on the books concerning economic Nexus to go forward with enforcement efforts and the recent legal demand is part of a trend that we've been seeing with California and California has been getting increasingly increasingly aggressive towards out-of-state sellers who California considers having Nexus in California just by lieu of the fact that they've been storing products in Amazon warehouses and using Amazon's FBA system so in many cases there is sales tax liability, but there's also potentially state income tax liability as well so now here's what to do about the recent tube and many Amazon sellers today some of them our clients have gotten an email notification from Amazon stating that.

Amazon has been served with a valid legal demand and has been given until November 6th to comply with that demand and turn over all seller information and any tax identification numbers associated with Amazon sellers the next thing that California will likely do is take this taxpayer identification information and run it through its database to see which entities have been filing California sales tax returns and which entity is perhaps have not been filing California sales tax returns there is a unit within the california department of tax and fee Administration called the an estate compliance division so typically the first step in this process is once California is able to verify the information from Amazon you'll probably receive a compliance letter from the department asking for information about your business so they will send out a detailed questionnaire and instruct you to send it back to compliance representative within a specified period of time usually 30 days it is important once you get this questionnaire to know that you are under an examination in California at least for the time being this is what we call compliance examination so the goal of the out-of-state compliance division is to get people who are outside of California registered with California and have them start paying sales and use but other the other part of this is that California is using a dusty compliance to determine when Amazon sellers might have had Nexus with California and to assert a back filing requirement by virtue of sending out this letter you essentially California has eliminated you from its voluntary disclosure program so you are not eligible for voluntary disclosure so California and going and going forward and in getting in compliance with California you'll be required to file all of your back sales tax returns and pay interest penalties associated with these filings and go forward from there and then California's collections department will start to take over.

The first thing to do is don't panic we've helped a lot of clients through this situation and even in cases where clients were in a clear violation of California law and have not been remitting California sales and use tax we've been able to find manageable solutions for this so the important thing is to reach out either to your CPA or to a qualified tax expert who can help you in answering the question air the most important thing at this point is controlling the scope of information that California has with respect to your business so that you can respond appropriately and not give them too much information so the important thing to do is understand what your liability is understand what how far back your liability extends to and then what your liability is not only in California but in other jurisdictions where you may do a particular volume of sales there are different Nexus requirements depending on the different jurisdictions that your add some adopt the South Dakota tests like the one found and Wayfarers other have a much more stringent standard and each of the states has their own enforcement priority some are focused on going retro actively some are focused on going forward so the important thing is not to panic it's really important to really plot your next move understand what the process is and then kind of go from there and measure your response to California and no matter which stage of this you're in whether you're in compliance or whether you get selected for audit or whether you go through the collections process there are a myriad of options that you can put into place that will help you and defend against these types of investigations.

So the very first thing to do is again don't panic sit down with your tax professional sit down with an attorney or CPA and really go through this information and measure your response this problem isn't going to go away this is really just the start of California taking a more aggressive stance towards out-of-state sellers and it only is a matter of time so please don't ignore the problem please sit down with somebody and then kind of go from there if you have any questions we've written a lot of information about this topic on our website which is WWF and calm you'll find some other posts if you need to you're more than welcome to contact us and we'd be happy to say that with you for a consultation to get in more depth on the specifics of your company what its Nexus exposure is and then what we can do to mitigate it so feel free to reach out to us our phone number and our website is on our or phone number and our contact information is on our website which is WWN Bronfman comm so look forward to hearing the comments on this post and look forward to hopefully speaking with some of you in the future and navigating you through these issues thank you so much.


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law