California Governor Gavin Newsom signed into law California’s sales and use tax economic nexus bill, Assembly Bill 147, overriding guidance previously provided by the California Department of Tax and Fee Administration (CDTFA).
The law raises the threshold for retailer gross receipts to $500,000 from the previous $100,000 or 200 transactions and now requires certain retail platforms to collect and report sales tax on behalf of those vendors who sell through their platform.
Although signed on April 25, 2019, the law is retroactive to April 1, 2019, and is a response to the South Dakota v. Wayfair, Inc. United States Supreme Court case that determined sales tax can be imposed on remote retailers with no property or employees within the state. It will significantly affect online sales platforms such as Amazon, Etsy, and eBay.
Expanded Definition of a Retailer
With the enactment of this law, a retailer is considered to be doing business in California when they have sales of more than $500,000 of tangible personal property for delivery in California in either the current or prior calendar year. All sales of tangible personal property by a retailer or anyone related to the retailer must be combined to determine whether or not the $500,000 threshold is met.
A related person is defined as someone who’s related to another as determined under Internal Revenue Section 267(b) and includes relations both through business and family. The legislature’s intent in setting the $500,000 threshold is to avoid burdening small businesses by providing a threshold significantly above that stated in the Wayfair case.
This law eliminates the inclusion of certain members of a commonly controlled group or combined reporting group in its definition of a retailer engaged in business in the state.
Marketplace Facilitator Definition
In addition, this law imposes a sales and use tax collection responsibility upon marketplace facilitators beginning October 1, 2019. Under this legislation, a marketplace facilitator is considered the seller and retailer for each sale facilitated through its marketplace, including sales by third-party or marketplace sellers.
For purposes of the $500,000 threshold, a marketplace facilitator would include all sales of tangible personal property made through its marketplace for delivery into California including both the seller’s own product sales and those sales of products facilitated through its marketplace. The law provides some relief of liabilities to marketplace facilitators in certain limited situations.
The marketplace facilitator provisions apply to marketplaces such as Amazon, Etsy, eBay, and other such sales platforms. Sales platforms such as these will be required to collect and report sales tax on behalf of those vendors who sell through their platform.
The legislation specifically excludes transportation companies from being classified as marketplace facilitators so, for example, local courier companies or national couriers such as United Parcel Service (UPS), likely won’t be found to be facilitators within the definition in the legislation.
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For more information on how this legislation may impact you or your business, please contact your Moss Adams professional.