Cal­i­for­nia wants back taxes from re­tail­ers who sold on Ama­zon

The Fresno Bee (Sunday) - - Insight - BY ADAM ASH­TON aash­[email protected]

Cal­i­for­nia is at­tempt­ing to col­lect years of back taxes from e-com­merce busi­nesses that sold prod­ucts on Ama­zon and at least tem­po­rar­ily housed their mer­chan­dise in the state.

The ef­fort to col­lect use taxes re­flects the state’s de­ci­sion to more strictly en­force a 2012 law that com­pelled on­line re­tail­ers, such as Ama­zon, to col­lect tax from their cus­tomers if the com­pany had any kind of phys­i­cal pres­ence in Cal­i­for­nia.

For years, the state did not hold small com­pa­nies sell­ing prod­ucts on plat­forms like Ama­zon and eBay to the same stan­dard. In­stead, it fo­cused on the big­gest play­ers.

That left a sig­nif­i­cant loop­hole for re­tail­ers us­ing ser­vices like Ful­fill­ment by Ama­zon, which gave them ac­cess to the re­tail be­he­moth’s cus­tomers as in­de­pen­dent op­er­a­tors.

Some of them have hefty earn­ings. Re­code in May re­ported that al­most a fifth of Ama­zon’s third­party sell­ers earned more than $1 mil­lion in sales in a sin­gle year.

Some of the com­pa­nies are ask­ing for le­niency from tax col­lec­tors and re­port­ing to Cal­i­for­nia lead­ers that they did not have con­trol of their prod­ucts when they were stored at ware­houses in the state, ac­cord­ing to their lob­by­ist and to state Trea­surer Fiona Ma.

Some of them say that pay­ing back taxes they didn’t know they owed will put them out of busi­ness.

“We are fac­ing tens of thou­sands of dol­lars in back taxes, penal­ties and in­ter­est,” wrote Mindy Wright of Ren­ton, Washington in a let­ter that Ma shared with Gov. Gavin New­som last week. “This alone will force us out of busi­ness and into bank­ruptcy. We just do not make much money and we are dis­traught and fright­ened.”

Ma in a let­ter last week asked New­som to re­con­sider the Cal­i­for­nia Depart­ment of Tax and Fee Ad­min­is­tra­tion’s ef­fort to col­lect tax from so-called third-party sell­ers on on­line re­tail plat­forms.

She en­cour­aged New­som “to spare those who will lose their busi­ness if they com­ply with (the state’s) de­mands.”

Her let­ter also in­cluded ex­cerpts from notices the state has sent to e-com­merce com­pa­nies de­mand­ing back taxes. They date back to March 2018 and warn that re­tail­ers could face fines of $5,000 and time in prison for evad­ing Cal­i­for­nia law.

The Cal­i­for­nia Depart­ment of Tax and Fee Ad­min­is­tra­tion has touted its ini­tia­tive to col­lect on­line sale tax since 2017, when Di­rec­tor Ni­co­las Maduros

asked state em­ploy­ees to iden­tify e-com­merce com­pa­nies that promised same-day de­liv­ery but did not pay sales tax.

He rea­soned that com­pa­nies ad­ver­tis­ing same­day de­liv­ery in Cal­i­for­nia prob­a­bly had a phys­i­cal pres­ence in the state, which meant that the state’s 2012 on­line tax law ap­plied to them.

Last year, he told law­mak­ers that his depart­ment sent notices to 2,500 on­line re­tail­ers no­ti­fy­ing them that they might owe Cal­i­for­nia tax. He es­ti­mated the com­pa­nies owed “hun­dreds of mil­lions of dol­lars.”

“It’s not an area we can af­ford to over­look,” he said at a hear­ing last year.

Paul Rafel­son, ex­ec­u­tive di­rec­tor of the On­line Mer­chants Guild, ar­gues the state should shift its fo­cus from third-party sell­ers and in­stead com­pel Ama­zon to pay back taxes.

Wright and other mem­bers of the as­so­ci­a­tion say they don’t con­trol where Ama­zon moves their mer­chan­dise when they send ship­ments to it.

“This is a new crop of en­trepreneur­s. There are 180,000 in Cal­i­for­nia, and what the state is do­ing is hurt­ing the whole mar­ket­place,” he said.

Ama­zon did not re­spond to a re­quest for com­ment. Tax at­tor­neys re­ported in Oc­to­ber that the com­pany had dis­closed to Cal­i­for­nia tax col­lec­tors in­for­ma­tion on third-party sell­ers that had moved mer­chan­dise through the state.

Third-party sell­ers par­tic­i­pat­ing in the Ful­fill­ment by Ama­zon pro­gram sign a 20,000-word con­tract that says they might owe state and lo­cal taxes if their mer­chan­dise is housed at Ama­zon ware­houses in var­i­ous states.

Wright of Washington state ob­tained a Cal­i­for­nia busi­ness li­cense and be­gan col­lect­ing Cal­i­for­nia sales tax from her cus­tomers in the state. They reg­is­tered with the state in an­tic­i­pa­tion of a new pol­icy that al­lows states to col­lect sales tax from on­line mer­chants re­gard­less of whether the busi­ness has a phys­i­cal pres­ence in a ju­ris­dic­tion.

Wright and her hus­band have been in busi­ness since 2009 with a com­pany that sells home fur­nish­ings and other items through sites like Ama­zon and eBay.

She said she and her hus­band were blind­sided by Cal­i­for­nia’s de­mand that they pay back taxes for their com­pany, MBW North­west.

“We’re just good peo­ple. We thought we were fol­low­ing the law, and it’s not nice to have peo­ple say we’ve been break­ing the law since 2012. We’re not bad peo­ple,” said Wright, 34.

Cal­i­for­nia’s tax depart­ment can ne­go­ti­ate set­tle­ments and pay­ment plans.

“Even if they put us on pay­ment plan, we’ll pay un­til we die,” she said.

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