California Tax Department Takes Aim at Fulfillment by Amazon

May 2019 | Article

By Laura Robichaud

The U.S. Supreme Court changed sales tax collection rules with their 2018 Wayfair decision. By overturning Quill in the South Dakota v. Wayfair case, states were provided the opportunity to collect sales tax from businesses making sales in their state without a physical presence. However, the ruling also provided basically no guidance for compliance. In his dissent to the ruling, Chief Justice John Roberts states the Court “breezily disregards the costs that its decision will impose on retailers,” and “correctly calculating and remitting sales taxes on all e-commerce sales will likely prove baffling for many retailers.”

Game Changer in California
One complicated situation has arisen in the state of California. While large retailers like Amazon are generally not impacted by these changes, smaller merchants who sell on Amazon, and other similar platforms, are feeling the effects of trying to stay compliant with new and varying tax laws across the U.S. In California specifically, the California Department of Tax and Fee Administration is working to collect up to eight years of unpaid back taxes from the users of Fulfillment by Amazon. The administration claims Amazon’s fulfillment centers constitute physical nexus in California for any merchant utilizing the centers. This contested interpretation of nexus would make merchants liable for sales tax in California for both items sold before, and after, the Wayfair decision.

California State Treasurer Fiona Ma is calling for these collections to be stopped immediately. Ma argues that sellers are not informed in advance of where their inventory would be placed. She also states that many platform providers like Amazon “typically do not allow these third-party sellers to retain customer information… [and] also handle the storage, packaging, payment processing, logistics and delivery of the products.”

Consider a Nexus Study
We are advising our clients to consider conducting a nexus and taxability study for this year. These studies can help online sellers to identify where nexus has been triggered and gain a better understating of their sales tax compliance in this new post-Wayfair world

Your Eide Bailly professional and our State and Local Tax Team are available to help navigate the new sales tax rules and discuss what should be considered by any merchant making sales in California and using Amazon or another fulfillment center.

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