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More Relief Needed for FBA Sellers, California Treasurer Says

Posted on May 28, 2019

A California bill to create a sales tax amnesty for Fulfillment by Amazon (FBA) sellers doesn’t provide enough relief for those small businesses, advocates say.

According to the California Department of Tax and Fee Administration (CDTFA), some remote sellers — mainly third-party sellers who used Amazon’s FBA service to sell products to California buyers — owe back taxes for those sales if the goods were stored in Amazon warehouses in the state before being sold. 

Advocates for those merchants, like state Treasurer Fiona Ma (D), however, have been pushing for legislation or action by Gov. Gavin Newsom (D) that would stop the state from going after back taxes from the sellers. Ma previously told Tax Notes that legislation enacted earlier this year (A.B. 147) that requires marketplaces to collect and remit the sales tax due on their third-party merchants’ sales was at one time going to include language forgiving the back taxes the state claims are owed.

However, Ma said, the idea was scrapped to ensure passage of the bill. In a March letter to Newsom, Ma asked the governor to direct the CDTFA to stop pursuing tax payments from FBA sellers.

“I’ve been asking him just to do a full amnesty, because the laws have been really gray,” Ma told Tax Notes May 23. “If anyone was supposed to collect and remit the tax, it should have been Amazon, in my opinion.”

Under budget legislation proposed by Newsom as part of his May budget revision, all but the last three years’ worth of sales taxes the state claims sellers owe would be forgiven, specifically for those sellers who hadn’t previously registered or paid sales taxes in California, who had only sold goods to California buyers through a marketplace like Amazon, and who voluntarily register with the state to pay those taxes in full or via installment agreement, provided “final payment under the terms of that installment payment agreement is paid no later than December 31, 2021.”

The proposal is somewhat reminiscent of the Multistate Tax Commission-backed amnesty program for remote sellers with similar inventory nexus in various states. California didn’t participate in that program and has provided far less relief for sellers that it claims owe back taxes.

Although Newsom is proposing more forgiveness for sellers than the state has thus far offered, Online Merchants Guild Executive Director Paul Rafelson is not satisfied.

“It’s a slap in the face,” Rafelson told Tax Notes May 23, arguing that the cost of taxes owed on sales from the past three years “will kill” a lot of small sellers, who didn't collect the tax due from buyers at the time of the sales. The accumulated tax burdens for many such merchants is well over their total savings, he added.

Rafelson also argued that Newsom’s proposal incorrectly asserts that sellers are responsible for the tax on sales of their products through FBA. He said that when Amazon takes control of sellers’ wares through that program, it becomes the retailer for the goods under California rules, an interpretation the CDTFA has previously disputed.

“The money is there for the state to get it — they just have to get it from Amazon,” according to Rafelson. “Amazon legally owes it. But with 20,000 [Amazon] jobs in California [the state’s] choosing to turn a blind eye,” he added.

Ma, a former Assembly member, said she voted for a 2012 legislative deal under which Amazon agreed to collect sales tax on its sales into California, but said the company hadn’t been upfront with lawmakers. “They never let us know they had this program with third-party sellers,” she said, arguing that the company had evaded responsibility for taxes on third-party sales.

Rafelson said his group is in talks with lawmakers but added that the group may seek a legal remedy, noting that before A.B. 147 was proposed, the group sent a letter to the CDTFA threatening to sue for an injunction against the agency.

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