Back in 2018, many Amazon sellers received an e-mail notification from Amazon with the subject “Disclosure to the California Department of Tax and Fee Administration,” stating that Amazon had been served with a legal demand from the California Department of Tax and Fee Administration (CDTFA) to turn over seller information as part of a broader post-Wayfair push by California to identify out-of-state online sellers who owed sales tax. If you’re reading this now, it’s important to know that the compliance landscape has changed substantially since then, and much of the guidance written in 2018 (including our own original version of this article) no longer reflects current law.
What Changed: California’s Marketplace Facilitator Act
Effective October 1, 2019, California’s Marketplace Facilitator Act shifted the responsibility for collecting and remitting sales tax to marketplace facilitators, such as Amazon, rather than individual third-party sellers. In practice, this means Amazon itself is now generally responsible for calculating, collecting, and paying California sales tax on orders it facilitates for delivery to California customers.
What This Means If You Sell Exclusively Through Amazon
If all of your retail sales are made through a registered marketplace facilitator like Amazon, you are generally no longer required to hold a CDTFA seller’s permit for those sales, and you do not need to separately collect or remit California sales tax on them. Many sellers who registered with CDTFA around 2018-2019 due to FBA inventory nexus concerns have since been able to close those accounts, provided Amazon is the retailer of record on all of their California transactions.
When You Might Still Have Sales Tax Obligations
Marketplace facilitator status doesn’t erase every seller’s California tax footprint. You may still need to register and remit tax directly if you sell through your own website or other channels that are not facilitated by a registered marketplace facilitator, or if your total California sales across all channels exceed the state’s economic nexus threshold and a portion of those sales isn’t already covered by a facilitator’s collection. You can learn more about how nexus works generally in this blog post, What Is Sales Tax Nexus And How Does It Affect My Business.
A Separate Issue: Income Tax Nexus
Sales tax relief under the Marketplace Facilitator Act doesn’t address California income or franchise tax exposure. Storing inventory in a California Amazon fulfillment center can still create sufficient nexus for state income tax purposes, independent of who collects sales tax on the transaction. Sellers should evaluate these two issues separately rather than assuming one resolves the other.
Legacy Exposure From Before October 2019
If you had nexus in California prior to October 2019 and didn’t register or remit sales tax at the time, that historical liability doesn’t automatically disappear just because current law has since shifted responsibility to Amazon going forward. CDTFA can still pursue back taxes, penalties, and interest for pre-2019 periods.
If You Receive A Notice From CDTFA Today
The specific “compliance examination” process CDTFA used in 2018 to identify unregistered Amazon sellers may look different today, but CDTFA continues to actively audit and pursue out-of-state and multi-channel sellers. If you receive any notice or questionnaire from CDTFA’s compliance or collections divisions, don’t ignore it, and don’t respond without first speaking with a qualified tax professional who can help you assess your actual exposure and control what information is disclosed.
Over the last few years, we’ve been helping Amazon sellers and other online sellers get into compliance with the myriad of state and local sales tax laws and state income tax laws that have affected sellers. You can find more information on our California Sales Tax Audits Guide or our Multi State Taxation Guide.
If you have questions, you can call our office at (619) 378-3138, and we’ll be happy to schedule a consultation to learn more about your company, what its California nexus exposure is, and create a strategy to mitigate it.
