Relief for California Out-of-State Retailers Qualified as Marketplace Sellers

For months, many out-of-state retailers have been working to determine the extent to which they may owe tax to California for sales made in prior years, even though they had no physical nexus in California. Following the U.S. Supreme Court's decision in Wayfair v. South Dakota, California took the position that out-of-state retailers who utilize Amazon to hold inventory and make sales to customers in California have sufficient nexus to meet the requirements to collect and pay sales/use tax to California. This was true even if the business sent inventory to Amazon outside of California and Amazon made the determination to store inventory in California.

The first relief came in April 2019 when California's Governor signed Assembly Bill No. 147, setting the economic nexus threshold at $500,000 in sales or deliveries to California, cumulative over 12 months. The new, higher economic nexus threshold took effect as of April 1, 2019, coming as a relief to many out-of-state retailers. Click here to read our original blog post on this change.

Additional relief came in July when the California Department of Tax and Fee Administration (CDTFA) announced it is offering relief to certain out-of-state retailers (referred to as "marketplace sellers") who are considered to be engaged in business in the state of California based solely on their use of in-state fulfillment centers to store inventory. Qualifying retailers may be entitled to reduced tax liabilities, penalties, and interest, effective June 27, 2019.

Retailers must meet all of the following conditions to qualify:

  1. Did not register with the CDTFA for sales and use tax purposes prior to December 1, 2018;
  2. Did not file sales or use tax returns, or makes sales or use tax payments, prior to being contacted by the CDTFA;
  3. Voluntarily registered with the CDTFA and, by September 25, 2019, filed completed tax returns for all relevant periods and paid in full or made arrangements for a payment plan; and
  4. Are considered to be engaged in business in the state of California based solely on the use of a marketplace facilitator (such as a fulfillment center).

To read the CDTFA's special notice on this relief, click here.

AB 147 also specifies that, as of October 1, 2019, marketplace facilitators will be considered the seller and retailer for each sale made through its marketplace, and will be required to register with the CDTFA and collect and remit sales tax on those sales, if their annual sales exceed $500,000.

"Marketplace facilitator" is defined as the person who:

  1. Facilitates the sale of products for a seller; and
  2. Operates the marketplace, directly or indirectly (such as communicating offers between the buyer and seller, providing virtual currency for product purchases, or developing software or infrastructure to house the marketplace); and
  3. Engages in activities related to the seller's products, directly or indirectly (such as providing payment processing services, setting prices, taking orders, or providing customer service or return assistance).

To read the full text of AB 147, click here.

To discuss your sales and use tax matter, contact one of our attorneys today.

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