E-COMMERCE & CALIFORNIA SALES TAXJanuary 15, 2022
California Department of Tax and Fee Administration, which oversees California’s sales taxes collection, recently began sending letters to Amazon users who use the “fulfillment-by-Amazon” service. The CDTFA received information from the recipient that inventory was stored in California warehouses or fulfillment centers. This may have required registration to pay sales tax. Sellers or taxpayers who have received this letter might be required to file sales tax returns or remit taxes. But how can you tell if? This is important because failing to collect or remit taxes could result in additional tax, penalties and interest.
Why did the CDTFA send this letter?
These letters were prompted by the CDFTA’s recent Supreme Court decision, South Dakota, Inc. v. Wayfair, Inc. The Court’s decision allows states the ability to collect sales taxes from sellers outside of their state. Sellers must collect and remit sales taxes even if they are not physically present. If a seller sells tangible products, has a sales tax connection in a state and sells to state buyers, they may be required to pay sales tax.
Sales Tax Nexus
A seller must have a sales nexus in order to be legally required to collect and remit tax. When a seller does business in a state, he or she has a sales tax nexus. A physical location that is used for business activities can include distribution, storage, office, and salesperson. Particularly, inventory stored at an Amazon Fulfillment Center in a state has a sales tax nexus. CDFTA sent a letter to sellers asking them to clarify their business practices in California. It is possible that they may have misunderstood what to do. If your inventory is stored in California Amazon Fulfillment Centers, you might be subject to sales tax. California has statutory sales tax exemptions. It is important to check if you are eligible.
We Can Help
It is better to act sooner than later if you receive a letter about this matter or believe you might be required to comply. The CDTFA is a complex and difficult area of tax. At Tenina Law Group, our lawyers have extensive experience in working with the agency on both collections and audits. We can help determine if your business must comply with sales tax reporting and, if so, what next steps to take.
This article was written by Alla Tenina. Alla is a top tax attorney in Sherman Oaks, CA in Los Angeles California, and the founder of Tenina law. She has experience in bankruptcies, real estate planning, and complex tax matters. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.