The California Department of Tax and Fee Administration (CDTFA), which administers California sales and use taxes (among other state taxes), recently issued a major announcement with implications for thousands of taxpayers. According to the CDTFA Special Notice announcing the news, certain out-of-state retailers – including Wayfair, eBay, and Amazon marketplace sellers – may obtain relief from liability for California sales and use tax, provided they meet certain criteria. Instead, liability for California sales taxes, including those associated with third-party sellers, will shift to “marketplace facilitators,” such as the aforementioned businesses. This change in policy could translate to substantial tax savings for “qualified retailers” who meet CDTFA criteria – but it also requires third-party sellers (and marketplace facilitators) to rethink their current tax strategies. If you sell products in California through Amazon, eBay, or similar websites, you may be directly impacted. Read on to learn more about who counts as a qualified retailer, what to do if you think you have qualified retailer status, and how an online business tax lawyer can help.
The CDTFA recently adopted new regulations which grant certain out-of-state retailers – including sellers on Amazon and similar platforms – “reduced liability for certain taxes, penalties, and interest.” However, only “qualifying retailers” are eligible, prompting the question: Who counts as a qualifying retailer under the new rules?
To receive this designation, online sellers must meet all of the following CDTFA requirements, among others:
• You cannot (1) have made any California sales tax payments, or (2) have filed any California sales and use tax returns (i.e. Forms CDTFA-401-A, State, Local, and District Sales and Use Tax Returns), after being contacted by the CDTFA. (If you have already been contacted by the CDTFA regarding a potential error or compliance issue, seek assistance from our California sales tax audit lawyers immediately.)
• You cannot have registered with the CDTFA (which is generally required for entities that do business in the state of California) before December 1, 2018.
• As a crucial follow-up to the previous point, you must register with the CDTFA no later than Wednesday, September 25, 2019, giving you only a few more days to act before it is too late. To reiterate, this provision does not apply if you have already been contacted by the CDTFA regarding a sales tax issue. In addition to meeting the September 25 registration deadline, you must also do one of the following, depending on your circumstances:
o “Apply for a payment plan,” with the final payment due “no later than December 31, 2021.”
o The simpler (but potentially more burdensome) option: “Pay the tax due in full.”
• You are only “engaged in business” in California by virtue of the fact that a “marketplace facilitator” either (1) stored your merchandise or (2) otherwise “facilitate[d] sales of your merchandise for delivery.” If your connection (“nexus”) to California is more substantial, you may not meet the criteria. Note that the term “marketplace facilitator” refers to websites like, Amazon, eBay, and Wayfair, which now have primary liability for all sales taxes – including those of third-party sellers.
For a complete overview of the eligibility criteria, refer to California Revenue and Taxation Code § 6487.07. Note that failure to meet any of these criteria will render the business ineligible for qualifying retailer status.
Qualifying retailer status can translate to enormous tax savings for online retailers, while simultaneously making tax compliance simpler (though conversely, marketplace facilitators now face increased regulation and liability.) Not only does qualifying retailer status prevent the assessment of sales tax during a certain period, it can also reduce or eliminate certain penalties. As the CDTFA explains, “A ‘qualifying retailer’ will not be assessed tax by the CDTFA with respect to sales made prior to April 1, 2016, and will be relieved of penalties with respect to sales made for the period April 1, 2016 to March 31, 2019.” In other words, (1) no California sales tax will be assessed on transactions predating April 2016, and (2) no penalties will be imposed for transactions occurring from April 2016 through March 2019.
In light of the tax and financial benefits associated with qualifying retailer status, it is worth reviewing your status with a business tax attorney, even if you are not sure whether you meet the CDTFA’s criteria. Our award-winning California tax attorneys, who combine more than 20 years of personal and corporate tax experience, can help you understand how you are affected and how best to ensure your continued compliance. To discuss how the new CDTFA sales tax rules for qualified retailers could affect your online business – and what steps you should take in response – contact us online today, or call the Tax Law Office of David W. Klasing at (800) 681-1295.
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