Relief Available for Certain Out-of-State Retailers Using Fulfillment Centers in California

For those who may qualify for relief, the CDTFA has prepared an announcement describing the formal application process and is also providing a new application form. 

Notice – https://www.cdtfa.ca.gov/formspubs/l681.pdf

Application – https://www.cdtfa.ca.gov/DownloadFile.ashx?path=/formspubs/cdtfa38a.pdf

Background  

In December of 2018, the California Department of Tax and Fee Administration (CDTFA) announced that, as a result of the U.S. Supreme Court’s Wayfair decision (Dock. No. 17-494), out-of-state retailers whose current or preceding calendar year sales into California exceeded $100,000, or who made sales into California in two hundred or more separate transactions, would be subject to California’s registration and use tax collection requirements for sales on or after April 1, 2019.

In April of 2019, the CDTFA announced that, as a result of Assembly Bill No. (AB) 147 (Stats. 2019, ch. 5), the use tax registration and collection threshold had changed from the “$100,000 or 200 transactions” rule established by the Wayfair decision; to sales into California exceeding $500,000, with the transaction count test being dropped altogether. Further, AB 147 clarified that the “greater than $500,000 into the state” threshold applied to all components of the tax rate including local and district taxes. The new AB 147 rules applied only to sales on or after April 1, 2019; and to retailers selling for delivery into California via the Internet, mail-order, telephone, or any other method.

Independent of the Wayfair decision and AB 147, the Board of Equalization (predecessor to the CDTFA with respect to sales and use tax administration) for several years had administratively concluded that an out-of-state retailer with sales from inventory in a warehouse located in California would either be deemed to have established nexus in California, or would be considered having a physical location in California. The former argument would require use tax registration and collection, while the latter argument would require a seller’s permit and collection of sales taxes. It appeared that district staff favored the use tax position, while the Legal Department leaned toward the sales tax view. Either way, taxpayers discovered by the Board, and later the CDTFA, whose only connection to California was sales from inventory located in a fulfillment center in California, or warehouse in California handling order processing, found themselves liable for back taxes and ongoing filing obligations.

Relief Under Senate Bill (SB) 92 (Stats. 2019, ch. 34)

AB 92 moves the effective date of the district use tax collection requirements from April 1, 2019 to April 25, 2019. This was done to eliminate the retroactive effect caused by AB 147 having an operative date of April 1, 2019 but not being signed into law until April 25, 2019. It does NOT change the effective date for the state and local components of the tax rate; that date remains at April 1, 2019. The second, and more significant relief offered by SB 92 concerns sales made by a “qualifying retailer” for periods prior to April 1, 2016, and potential penalties with respect to sales made for the period April 1, 2016 through March 31, 2019.

Effective June 27, 2019, you are a “qualifying retailer” under the new Revenue and Taxation Code section 6487.07 if you meet all of the following conditions:

  • You did not register with the CDTFA under the Sales and Use Tax Law prior to December 1, 2018. If you registered before that date, you were presumed not to be responding to CDTFA’s letter (“FBA letter”) addressed to potential taxpayers using in-state fulfillment centers. Example: retailers participating in Amazon’s FBA program.
  • You did not file sales or use tax returns or make sales or use tax payments prior to being contacted by the CDTFA. The intent is to provide relief to those taxpayers who responded to the FBA letter sent by CDTFA.
  • You voluntarily register with the CDTFA, and by September 25, 2019, file completed tax returns for all tax reporting periods for which a determination may be issued under section 6487.07 (that is, for periods on and after April 1, 2016), and either
    •     Pay the tax due in full, or
    •     Apply for a payment plan, but only if the final payment under the plan is paid no later than December 31st, 2021 (qualifying installment payment) 
  • You are, or were, engaged in business in this state solely because you used a marketplace facilitator (as defined in section 6041) to facilitate sales for delivery in this state and the marketplace facilitator stored your inventory in this state.

A “qualifying retailer” will not be assessed tax by the CDTFA with respect to sales made prior to April 1, 2016 and will be relieved of penalties with respect to sales made for the period April 1, 2016 to March 31, 2019.

Qualifying retailers who reported and paid tax on sales made prior to April 1, 2016, and did not collect tax on those sales, should file refund claims for any payments made. Taxpayers should note that eligibility for refunds for these periods has technically expired under the statute of limitations, and that CDTFA has not given any indication as to how they will respond to refund claims under this section.

Welcome Ryan Barnes to the Thompson Tax Team!

We are so excited to welcome our newest team member Ryan Barnes. Ryan joins us as our Director of Technology Services. Ryan comes to us with over 10 years of tax technology automation experience and has worked with start-up companies as well as large enterprises. He has expertise and a passion for end to end sales and use tax automation and he loves to take on new challenges. He has extensive experience with e-commerce, point of sale, retail, software and clothing industries. Specialties include Netsuite, Dynamics GP, and APIs. If you have any sales tax automation challenges, he is the guy to talk to and would love to assist in solving them!
For fun, Ryan enjoys kayaking, camping, hiking, tasting new beers and trying out the latest & greatest board games with friends. He is based out of Portland, Oregon, so if you’re close and would like to meet in person please let us know!
Please join us in giving Ryan a warm welcome!

Reminder – Remote Sellers May be Subject to California’s State, Local, and District Use Taxes as of April 1, 2019

The California Department of Tax and Fee Administration (CDTFA) has published a new on‑line guide to assist businesses in learning more about how the Wayfair decision expands use tax collection requirements for retailers:  http://www.cdtfa.ca.gov/industry/wayfair.htm

Meanwhile, the Legislature sent a bill to the Governor that would modify post-Wayfair use tax collection requirements.  Assembly Bill 147, enrolled on April 9th, would specify that on and after April 1, 2019, a retailer engaged in business in California includes any retailer that, in the preceding calendar year or the current calendar year, has total combined sales of tangible personal property for delivery in this state by the retailer and all persons related to the retailer that exceed $500,000.

The bill would allow the department to grant relief to certain retailers engaged in business in this state for specified interest or penalties imposed on use tax liabilities due and payable for tax reporting periods beginning April 1, 2019 and ending December 31, 2022.  It would also eliminate separate tests for state, local, and districts’ tax collection responsibilities.  You can follow this bill at:
https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB147

Questions?  Contact us at: info@thompsontax.com

It’s not too late for the 4/1/2019 CA Registration Date!

News Flash!  If your company has a new California sales tax obligation as of April 1, 2019, we can help!  Not sure if you have an obligation to register in California?  We can help with that, too.  It’s not too late!  Our team specializes in Compliance and can help your company get registered and file your new California sales tax return.  We can also help with determining the taxability of your company’s products and services, training your Tax and A/P teams on the proper treatment of sales and use tax, Voluntary Disclosure Agreements, and more!  Reach out to us at info@thompsontax.com to learn more.

South Dakota vs. Wayfair, Inc – The Supreme Court has decided.

In the most anticipated sales tax cases in many years, the Supreme Court of the United States has ruled that an out-of-state retailer with no physical presence in the state could be subjected to that state’s sales/use tax laws under an “economic” nexus standard. In South Dakota v. Wayfair, Inc. et al. Docket 17-494, the Supreme Court decided that the physical presence standard established in the 1992 Supreme Court decision Quill Corp. v. North Dakota should no longer be the nexus standard in today’s economy dominated by the Internet. Instead the Supreme Court ruled in a 5-4 decision, the South Dakota’s economic nexus statute did not violate the provisions of the United States Constitution.

While this decision allows for South Dakota law to stand, there remains many unknowns as to whether South Dakota and other states will apply their economic nexus standards retroactively or whether they will provide a time frame for prospective registration, or even refine existing rules to become more stringent on the application of the law. The high court’s decision simply validates that the precedence set forth by Quill no longer applies, opening the door for taxable nexus statutes creating an economic footprint instead of a physical presence standard for businesses to follow.

Thompson Tax & Associates, LLC as your trusted tax advisor can assist your company through this material change in this sales and use tax standard that prevailed for so many years.