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March 13, 2019

Good Sales Tax News in California for Online Sellers?

Letter to the Governor of California Seeking Relief for Online Sellers

Fiona Ma, the California State Treasurer recently sent a letter to the Governor, Gavin Newsom that is causing a bit of a stir in the online seller community. 

In her letter she states that the CDTFA’s (California Department of Tax and Fee Administration) targeting of online sellers is “unlawful, unconstitutional and impractical”. That’s pretty strong language coming from a high-level government official.

She calls on the Governor to put a halt to the CDTFA’s aggressive tactics immediately. She also requests that the Governor direct the CDTFA to issue statements that online sellers are not liable to collect sales tax at all (either retroactively or prospectively) since they are not a “retailer” under California statutes. 

It’s easy to see why such language would generate some hope from sellers just trying to stay in business. But we’re not sure the request has any legs and we want to make sure our clients and your clients understand what’s happening in CA. 

It’s best to keep in mind that when it comes to state taxes, many states tend to follow California’s lead in things like this. So if California has success (and they are), then look for other states to use the same approach. Click here to get a copy of the entire letter.

We did a podcast with some of our reactions and our advice. You can watch the video of the podcast here, even before it’s edited and officially published with show notes on the podcast site. We want you to have the information as soon as possible.

Executive Summary of the Podcast

We agree with the sentiments expressed by Fiona Ma most wholeheartedly! Even if she may be just grandstanding as an elected official looking for good publicity, we still agree with her points about the overreaching of the CDTFA. We feel for these online sellers who are just trying to stay afloat in a very competitive world.

The whole concept of nexus is new to these businesses and there is so much conflicting information about it. Even this letter from the Treasurer of the State of California with declarations like online sellers have no legal obligation to collect sales tax at all, contributes to the air of confusion.

Online sellers (some of them) are just now getting used to the idea that they may be required to start collecting sales tax in other states because of the recent ruling in Wayfair, but the thought that they might owe tax themselves on sales in prior months or years is staggering (and for good reason). They might be willing to register and collect taxes going forward, but what the CDTFA is demanding is literally impossible for many of them. So we understand!

Unfortunately, the chance that the Governor is going to do something about this seems rather slim. While we fervently hope that he will do exactly what Fiona Ma is requesting, we’re pessimistic about those prospects.

Presumably, most (and maybe all) of the sellers targeted by the CDTFA are located outside of California. Just thinking politically now, what incentive does the Governor have for giving non-voting businesses any tax break in CA? CA is desperate for more money. If they can get it with very little push back from voters, then (from their perspective) why would they stop what they’re doing and maybe double down?

Even Fiona Ma herself was quoted in the Sacramento Bee as saying she thought the Wayfair decision was good for California brick and mortar businesses. So we take with a grain of salt what she is saying now.

Our Advice?

As we said in the podcast, it’s wise to be conservative when it comes to collecting sales tax. We don’t recommend that any seller currently registered and collecting sales tax in CA stop now on the basis of this letter. Don’t expect the CDTFA to do anything different than what they’re already doing.

If you’re currently selling in CA and have been doing so for years and they haven’t contacted you yet, then you should consider a voluntary disclosure.

Learn more about what options you have by downloading our FREE Sales Tax Guide for Amazon FBA Sellers that you can download here.

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