Wait, so if I sell widgets to people in 50 states from my little website, I might have to file and submit collected taxes for 50 states? That seems like a mountain of work for selling my crappy little widgets.
Thanks for the mention, Eli. I work for Avalara on their social media team. We are staying on top of these changes and I wanted to share this clarification.
More than a dozen states impose a sales tax collection obligation on marketplace facilitators (Amazon, Etsy, eBay, etc.). In addition to collecting and remitting tax on their own sales into the state, if they have any, marketplace facilitators will soon be responsible for collecting and remitting sales tax on all sales made through the marketplace in even more states. Most recently, Wyoming and California have joined the ranks; Virginia is close, which we expect to be on the books by the middle of this year. We anticipate every state to have a law like this on the books by Q1 of 2020.
Where I see a lot of confusion is from sellers who are struggling to understand economic nexus regulations that are based on reaching sales thresholds. Adding to the confusion, these thresholds vary from state-to-state.
If you'd like to learn more, our recent blog "How marketplace facilitator sales tax laws in different states affect marketplace sellers" covers this in depth. https://avlr.co/2VFKvCa Here’s an excerpt:
"Now that states are no longer prohibited from taxing remote sales, they’re looking for the most efficient ways to bring in remote sales tax revenue. Approximately 35 states have adopted economic nexus laws, which impose a sales tax collection obligation on businesses with significant economic activity in the state. Such economic nexus laws generally provide an exception for small sellers (defined differently in different states).
Many marketplace sellers qualify for these small seller exceptions, meaning they’re safe from the long arms of the tax authorities. But states that require marketplace facilitators to collect and remit sales tax on behalf of their sellers still reap revenue from those transactions. It’s a win-win for states, which is why we can expect to see marketplace facilitator sales tax laws proliferate.
It’s important to note that marketplace sellers aren’t necessarily freed from all responsibilities under these laws. In fact, these laws can complicate matters a bit because they change the rules. Ordinarily, businesses that don’t have nexus with a state (an obligation to collect sales tax) don’t have reporting requirements. That’s not the case with all marketplace facilitator sales tax laws, as you’ll see below."
As a seller of little widgets that just started on Amazon a few months ago, that's exactly what I have just discovered this past week as Q1 2019 ended. I sell one widget for $25 and I have to file, and I sell $0 in another state where Amazon has a warehouse, and I still have to file. TaxJar will do everything for me, but it's $20 per filing period per state. If you have a monthly filing period in 50 states that will be $1000/month, $12000 year, just to file. Actually paying the taxes, that must also be calculated town-by-town, is on top of the $12000/yr. Note: TaxJar offers a 20% discount for annual and lots of filings, and is a great company and service, but the foregoing illustrates the problems for small companies going forward.
Perhaps I'm missing something, but what is not clear here is whether, going forward, Amazon collects the taxes on Fulfilled-By-Amazon products, and whether that eliminates the need for each small vendor to file separately.
If Amazon does not collect the tax, and every small vendor needs to file for every micro-sale, this could have a massive negative effect on online commerce in general and particularly for Amazon, likely to see it's small vendors dropping like flies and undermining it's Get-Anything-On-Amazon approach
My hunch is that if this is a problem then Amazon will soon provide a turnkey solution for its vendors. It would be a great competitive advantage to prevent the tax headaches.
Seems like a good hunch. They've certainly got the capital, bandwidth and experience to do this, and id would be a HUGE competitive advantage. If the states get really aggressive going after the small vendors selling from their own websites, it'll even drive them to work through Amazon...
Great for the AMZN stockholders, but not so great for the ecosystem...
Each state has a minimum gross sales before sales tax must be collected. In CO (where I am), it's 100k/yr shipped into CO; in CA, it's 100k/yr or 200 orders.
But if you have a physical presence in CO (or CA), then you have to collect it for all orders (no minimum). But CO and CA consider Amazon FBA warehouses to be an extension of your business.
So if you wanted to make it cheaper, just don't use Amazon's warehouses to store and ship goods from. Also a lot of states allow sales tax to be filed annually.
In most states, filing periods are based upon transactional volume. Sometimes that's defined as the transaction count. Sometimes that's the tax base itself. But with lower volumes, you can often do quarterly or annual filings, depending.
Just 50 states would be easy. You're forgetting county and municipal/locality taxes. Or the varying due dates for each of those jurisdictions. Or whether or not your widget business creates a nexus in those states and requires you to register as a foreign entity. Or whether or not your specific widgets trigger a higher or lower taxation rate. Or that whether or not shipping should be taxed also varies state to state. Or...
its more complicated than that. such as sales tax holidays and classifying stuff you sell correctly. i.e. packaged food might have no sales in some states but what qualifies as tax free food can vary from state to state. to get this right, you have to make sure you are classifying everything in a very verbose manner that covers every single state.
Well a dozen states so far have passed legislation requiring Amazon to collect it instead of you, and the others all have thresholds. California just passed the bill putting the onus on Amazon and more states will probably follow.
No, you're still subject to nexus thresholds (though note: using Amazon FBA will generally trigger this threshold in any state where Amazon maintains distribution facilities and warehouses...which is most of them.) Generally, most states require you to have more than de minimis sales into a state to be subject to sales tax collection (again, unless you use something like Amazon FBA). Amazon and Shopify will handle sales tax for you (now), but they won't handle the threshold determination for you--it's an on-or-off proposition.
However, what's happening here is that Amazon is deemed to have created sufficient nexus for the sellers using FBA. Because Amazon is acting as an agent of the seller, and is storing the seller's goods in California, the seller is deemed to have nexus through their agent, Amazon. This is a long-standing interpretation of the law that has been upheld many times.
Generally, Amazon should have handled the collection of sales taxes for the sellers, but since it did not, the principal (the seller) is legally responsible for paying them.
That was the argument California used, but it was never tested in court and there were strong arguments against it. You're basically repeating California's legal opinion as fact.
Then, the Supreme Court ruled last year that nexus doesn't matter, states can tax outside retailers regardless. So many states passed new laws doing just that.
The question of whether inventory in FBA creates nexus is still relevant for back taxes, and it's possible that will go to court at some point, although it seems likely California will end up waiving back taxes.
No, you're misunderstanding the SCOTUS ruling in Wayfair. The Supreme Court didn't rule that nexus doesn't matter.
They simply eliminated the physical nexus requirement of Quill. There are still (undefined) economic thresholds required for nexus for taxing out-of-state retailers.
If you sell $5 of stuff into a state, you aren't subject to sales tax collection in that state. If you sell $100,000 of stuff into a state, you are. Unfortunately, the exact threshold where you have economic nexus varies from state-to-state and not every state has yet updated their laws for Wayfair.
However, physical nexus still exists (it's "stronger" than economic nexus), and that is why California treats Amazon FBA inventory as giving rising to nexus. It doesn't matter that it has never been tested in court--it's been generally accepted law in the US for decades (predating Quill) and it would take a court ruling for it to be otherwise. (In fact, part of the Quill decision was premised on the fact the seller did not maintain an office, employees...or inventory...in South Dakota and thus had no physical connection to the state.)
>It doesn't matter that it has never been tested in court--it's been generally accepted law in the US for decades (predating Quill) and it would take a court ruling for it to be otherwise.
The issue is there are arguments on both sides how to apply the general accepted law. Do you treat it as seller owned inventory, or do you treat it as consignment? Does commingled inventory belong to a seller, and if so, at what point does title transfer if the seller has not had a sale? If two people send inventory to Amazon, it's commingled, and Amazon stores one of the units in California, which seller has physical nexus?
Taking California's position on these legal questions may be the pragmatic approach if someone wants to avoid legal risk, but it's by no means clear that they're right under established law. You're entitled to your legal opinion, but so are others, and other tax lawyers have weighed in and believe California's argument is incorrect here. Given that the issue hasn't been decided in court and there are lawyers arguing both ways I don't think it's right to say that clearly one side is right.
Also, when California imposed a state sales/use tax collection obligation (effective April 1) on out-of-state sellers with more than $100,000 in sales or at least 200 transactions in the state in the current or preceding calendar year, it also required in-state and out-of-state sellers to collect and remit district sales/use tax in any district where they surpassed the $100,000 sales/200 transactions threshold.
Here's the clincher that has created a real headache for a lot of sellers. The law that was enacted April 25 retroactively supersedes the previous April 1 rule. So, as of April 1, the transaction threshold is eliminated, and the sales threshold is now increased to $500,000.
The new law also eliminates the need to track sales in each district. And, starting October 1, 2019, it requires marketplace facilitators to collect sales/use tax on behalf of third-party sellers.
To be fair, the changes adopted by the legislature should make sales tax compliance a bit simpler for in-state and out-of-state sellers alike. While many businesses are undoubtedly pleased with the new policy, the fact that California adopted one set of rules/requirements as of April 1, changed them weeks later (as of April 25), and set more changes for the not-too-distant future is frustrating.
If you run a SaaS business this applies to you too especially when you start to reach any sort of scale. The wayfair case has only emboldened the states.
My tax accountant who used to work for IRS said once: if you have problems with IRS and CA FTB, satisfy FTB first, because they are essentially irrational and act like rabid dogs. The state has the entitlement mentally permeating its government. For example if you create a business in CA that never operated and don't dissolve it, they will wait 10 years and come after 800*10 franchise tax plus penalty to the tune of $13,000. If you are a small business, CA is not a good place for you.
My late uncle was a successful, independent entrepreneur who sold industrial equipment. Effectively he acted as a broker matching precision machine shops (suppliers) with buyers (demand). For example, he sold specialized nozzles machined in Europe to dairy farms for a fraction of what the OEM charged for consumables. The kind of economic agent economists presume are ubiquitous but in actuality are very rare.
Originally from Chicago, he worked from Wisconsin while raising his family, and then for nearly 20 years in California. He had a very midwestern attitude regarding government which is unfortunately waning. I forgot what prompted the comment (perhaps I was complaining about Calfornia's $800 franchise fee), but he once commented that if you can't be bothered to pay and stay current with the $800 franchise fee you shouldn't be in business at all.
The $800 fee seems excessive, I feel like it's an impediment, and I've had my own run-in with the CAFTB that left me feeling railroaded. But frankly I find it hard to dispute his point.
The important thing is that the CAFTB is no joke, so if you're in California or even a resident elsewhere doing business in California, be diligent about paying California taxes or be prepared to aggressively defend yourself when they inevitably come knocking at your door (or digging through your trash, harassing your neighbors, or poisoning your dog[1]).
[1] That last one was a joke, or at least unsubstantiated.
if you have problems with IRS and CA FTB, satisfy FTB first, because they are essentially irrational and act like rabid dogs. The state has the entitlement mentally permeating its government.
This is categorically false. In my practice as a tax lawyer, I deal with the FTB all the time and they are not only more than reasonable--they are willing to bend over backwards to help my clients comply with CA tax laws and to waive penalties. The IRS, on the other hand, especially under the current administration, is unwilling to negotiate on anything unless you have political connections to the administration.
If you are a small business, CA is the best place for you unless you don't care about making money. CA has the largest and best-educated employee base, the largest customer base, and the largest network of manufacturers, distributions, and various service providers you could ever need. There's a reason that CA has been one of the top 10 economies in the world for decades straight.
The IRS is currently strapped for manpower/funding so they're as willing to negotiate as they've ever been. CA is a terrible place to do business (because of all the overhead associated with complying with CA's labor and environmental laws) unless that business is tech or selling metaphorical pickaxes to the metaphorical miners.
Your statements appear to be specifically calibrated to be totally false yet believable to people who know nothing about the subjects in question and I find this dishonest and disagreeable.
You don't have to be exploiting people or trashing the environment in order to have the costs associated with complying with laws specifically designed to prevent you from doing those things.
CA is a terrible place to do business (because of all the overhead associated with complying with CA's labor and environmental laws) unless that business is tech or selling metaphorical pickaxes to the metaphorical miners.
Ah, that explains why California leads the nation in agriculture, manufacturing, entertainment, logistics, and service industries (except finance). Because it's such a terrible place to do business that it can't possibly be the 5th largest economy in the world (and in the top 10 largest economies in the world for the last 3 decades straight).
Within several blocks of my office are hundreds of successful small businesses, none of which are tech companies. They're all doing fine. On my way to and from work, I pass hundreds more similar companies ranging from small mom-and-pops to multi-billion dollar multinationals, all so busy that they're hiring employees like crazy.
But sure, go ahead and tell people that CA is a terrible place to do business. Reality says otherwise.
Wow, I am NOT a tax lawyer and have had some pretty bad run-ins with the FTB multiple times. Even when they have made mistakes, they basically have said "we admit this ws an error, but oh well, pay it anyway!"
Granted this was an LLC that was pulling in less than $10K/mo, so not really big fish, but still...my dealings with the FTB have been less than pleasant.
Doesn’t CA have a use tax law like other states requiring taxpayers to file and pay the sales tax as part of their yearly income tax filing?
I know most people commit tax fraud and fill 0 in on that but in the case of people who did pay those use taxes, the state is now double dipping and getting the money from the retailer as well as the customer.
In the case of interstate commerce (and catalog ordering, crossing the border to buy if you live nearby, etc) they have the concept of "use tax" where you must pay the equivalent of sales tax on goods you bought to use in your home state without paying state income tax. You are expected to pay use tax on goods you purchase on the internet tax-free at income tax filing time, and (a vanishingly small number of, I'm sure) honest people have been reporting their purchases and paying tax on goods purchased on the internet. Retroactively taking sales tax from those retailers would double-dip.
Sales taxes are imposed on the buyer, but is collected by the seller. That is why buyers are supposed to file use tax returns for out-of-state purchases.
This is in contrast to something like Hawaii's GET, which is a tax on the seller that is "passed on" to the buyer.
> I think an argument could be made for "No Taxation without Representation", one of the causes of the American Revolution
People always have gripes, some valid and some invalid, against the powers that be.
One difference with the American revolution was a willingness to commit acts of violence against British soldiers. I would hope we're able to resolve most of our gripes without resorting to the horror of war.
We aren't at the point of coercion the British government was at. The state of Arkansas isn't deploying its National Guard to enforce the "Great Value brand purchase Act." ;)
The tax is paid by the in-state buyer, not the seller which is just collecting the tax (but of course if it didn’t collect the tax at the time of the sale because the rule has changed now they have a problem).
But I believe when Amazon itself ran into this long ago (being in seattle but having to collect taxes for california) it complained that they were doing something for california but california provided no services for amazon and it's employees.
Australia recently ruled that its local (10%) Goods and Services Tax (GST) applies to the majority of online purchases. The big overseas sites, such as Amazon, claimed that it was not practical for them to collect the GST on behalf of the Australian Government. It could get interesting now that that Australia can say "but you have the facility to collect out of state taxes, so why not out of country?"
Presumably there will be a host of new web based startups offering a one-stop tax collection service for all jurisdictions in the world.
Amazon has reopened the Amazon US store to Australia now that their systems are upgraded. But it only applies to a handful of items, sold directly by Amazon - you can't buy items from third party sellers on Amazon US & have them delivered to Australia anymore. Third party sellers still have to register on Amazon Australia instead.
Yes there was recently an item on Amazon I wanted to buy. But could not as it was not listed on the local amazon.country. It ended up costing me 10X as much having it shipped from Europe to a friend in the USA and then here.
Enormous costs imposed on me and others for very little benefit.
There are companies that do nothing but calculate the tax on some good in a given jurisdiction. I only know this because my neighbor works for one, and before that she worked for another.
I don't know the names and couldn't recommend one if I did, but when she was at her previous job I asked if it was really a big deal deal and when she started to tell me it was like opening the gates of hell... Seems like if there are two such companies on the west coast there must be several at least.
"The states are prohibited from passing ex post facto laws by clause 1 of Article I, Section 10. This is one of the relatively few restrictions that the United States Constitution made to both the power of the federal and state governments before the Fourteenth Amendment." - wikipedia
What California is doing is unconstitutional and they should be slapped, hard.
Taw laws are written sufficiently broadly that the enforcement of the laws can be ex post facto.
In this case, the law merely clarifies the state's long-standing position on sales taxes based on pre-existing state laws, so it is arguably Constitutional for them to seek retroactive sales taxes. Whether it is wise for them to do so is another matter.
The LA Times article is wrong and most of the comments here are wrong too.
Merchants ALWAYS had to collect sales tax for sales to any state in which they have nexus. The only thing South Dakota vs. Wayfair changed is the standard for nexus -- previously, you had to have physical presence[1] in the state, but now states can define substantial nexus as making a certain number and/or dollar value of sales to the state.
You ALWAYS had to remit sales tax to any state you warehouse merchandise in (except for Virginia and New York, which do not consider merchandise in third-party warehouses to create nexus). Amazon ALWAYS screwed merchants over by moving Fulfilled By Amazon / Amazon Multichannel Fulfillment merchandise around willy-nilly and creating tax obligations for the merchants. (Note: Once you have nexus in a state, you have to collect and remit sales tax for ALL sales in that state, not just those from the warehouse in that state[2]). Some of their competitors, like Ship Bob and Deliverr, do the same thing -- it's all based on the nasty attitude that the consigned merchandise in their warehouses belongs to them, not the merchant (who it actually belongs to). Most merchants appear to handle this by either flagrantly breaking the law, or by being too stupid to realize they have physical presence outside their home state.
California AB 147 is one of the many bills that states are passing in the wake of South Dakota vs. Wayfair to set non physical presence based substantial nexus standards. In the case of California, AB 147 sets the threshold at $500,000 gross sales to California addresses.
The Times article says that California is going after small out-of-state merchants under the new law. Bzzt! They are going after out-of-state merchants who had physical presence and had already been shirking their tax responsibilities for years. They would have been going after those merchants anyway, AB 147 or no AB 147.
Anyone who lies down with wolves (FBA), doesn't do due diligence and complains they got fleas is getting what they deserved.
The LA Times article also says that the bill requires marketplace facilitators to collect taxes in order to help small out-of-state businesses, which is another instance of the article's author failing to read and understand anything at all. The bill requires marketplace facilitators to collect taxes because most of the merchants doing business through the marketplace facilitators fall below the $500k substantial nexus threshold and would thus be exempt; by declaring the marketplace facilitator as the retailer of record, California is able to collect taxes on the aggregate sales through that marketplace facilitator where the sales would otherwise be considered exempt.
I am not a lawyer and this is a rant, not legal advice.
[1] Or certain other things that trigger nexus, such as sales agents.
[2] Although, if the merchandise stored in that state is used only to fill orders outside that state, it doesn't create a market in that state and might be argued not to create substantial nexus. Do you feel lucky, punk?
California may be arguing that, but that doesn't make them right. As far as I know, there's never been a court that ruled that FBA inventory counts as nexus, and there's strong arguments against that (not being able to know in advance where inventory is, not having control over it, commingling). California was just bullying smaller sellers who didn't want to get into a legal battle.
If they were using FBA they had a nexus in California and should have been paying sales taxes. This was the case even before South Dakota vs. Wayfair decision. Amazon runs warehouses and logistics in California and is acting as an agent.
How does this work for someone selling on Ebay (or any other auction site)? Is that classified as something else because I don't recall sales tax being collected for eBay purchases.
I know 50 states is more than 10, but you've always had to do this in Canada. Each province roughly has a different tax rate, and different tax rates apply to different items.
You just submit it all to the Federal government (or Quebec government for just Quebec) and they deal with the distribution to each province.
For example I get taxed by DigitalOcean based on what my billing address is set to. DigitalOcean then takes that tax sends 9 provinces worth of it to the CRA and 1 (Quebec) to the Revenu Québec.
For what it's worth in the states there are also thousands of localities to deal with as well. Software is needly very quickly to actually properly account for sales. Also in the US there is a complicated system of sales tax, use tax, and exemptions for certain businesses buying goods for resale.
This ruling is actually a larger problem than Amazon. It effects businesses of all kinds, even those that do not touch online marketplaces like Amazon.
My company has an online presence, selling and shipping out of one state, on our own custom-developed online platform. We also have a very large "offline" business selling in-store visual merchandising material to major retail chains. But it's all produced in and shipped from one state. We also have a small New York sales office.
In the past, we have only had to collect sales tax for three states. Our home state, New York, and California. California is interesting. They decided that since we travel there a lot, and do a significant amount of business there, we have a business nexus there. The key was really the amount of travel we do there, even though we have no CA office.
But now, with the Wayfair ruling, the bar has been substantially lowered. An economic nexus is now sufficient to require us to collect sales tax. We decided to get ahead of the freight train heading our way. Rather than waiting for the states to come knocking on our door, we ran the numbers and determined that we now need to file in about 75% of the states. This is a huge burden. Even calculating the tax is a nightmare, not to mention filing.
Thankfully, I was already leading a project to integrate a 3rd-party tax calculation service into our ERP, so the calculation side of things is covered. Filing is another matter. For that we engaged our accounting firm, who offers filing as a service. It isn't cheap, but it's cheaper than hiring the additional staff it would have taken to keep up with this.
I expect that these types of calculation and filing services are going to be doing a lot of additional business very soon.
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[ 4.6 ms ] story [ 125 ms ] threadMore than a dozen states impose a sales tax collection obligation on marketplace facilitators (Amazon, Etsy, eBay, etc.). In addition to collecting and remitting tax on their own sales into the state, if they have any, marketplace facilitators will soon be responsible for collecting and remitting sales tax on all sales made through the marketplace in even more states. Most recently, Wyoming and California have joined the ranks; Virginia is close, which we expect to be on the books by the middle of this year. We anticipate every state to have a law like this on the books by Q1 of 2020.
Where I see a lot of confusion is from sellers who are struggling to understand economic nexus regulations that are based on reaching sales thresholds. Adding to the confusion, these thresholds vary from state-to-state.
If you'd like to learn more, our recent blog "How marketplace facilitator sales tax laws in different states affect marketplace sellers" covers this in depth. https://avlr.co/2VFKvCa Here’s an excerpt:
"Now that states are no longer prohibited from taxing remote sales, they’re looking for the most efficient ways to bring in remote sales tax revenue. Approximately 35 states have adopted economic nexus laws, which impose a sales tax collection obligation on businesses with significant economic activity in the state. Such economic nexus laws generally provide an exception for small sellers (defined differently in different states).
Many marketplace sellers qualify for these small seller exceptions, meaning they’re safe from the long arms of the tax authorities. But states that require marketplace facilitators to collect and remit sales tax on behalf of their sellers still reap revenue from those transactions. It’s a win-win for states, which is why we can expect to see marketplace facilitator sales tax laws proliferate.
It’s important to note that marketplace sellers aren’t necessarily freed from all responsibilities under these laws. In fact, these laws can complicate matters a bit because they change the rules. Ordinarily, businesses that don’t have nexus with a state (an obligation to collect sales tax) don’t have reporting requirements. That’s not the case with all marketplace facilitator sales tax laws, as you’ll see below."
If Amazon does not collect the tax, and every small vendor needs to file for every micro-sale, this could have a massive negative effect on online commerce in general and particularly for Amazon, likely to see it's small vendors dropping like flies and undermining it's Get-Anything-On-Amazon approach
Great for the AMZN stockholders, but not so great for the ecosystem...
But if you have a physical presence in CO (or CA), then you have to collect it for all orders (no minimum). But CO and CA consider Amazon FBA warehouses to be an extension of your business.
So if you wanted to make it cheaper, just don't use Amazon's warehouses to store and ship goods from. Also a lot of states allow sales tax to be filed annually.
It's a whole lot of work to be legally compliant.
IMO it’s encumbent on the Fed to sweep all this away under interstate commerce and make compliance as close to a fully automated process as possible.
Step 1: use a SALT SaaS provider that handles your sales tax collection at point-of-sale.
Step 2: there is no Step 2. Seriously, there are a dozen providers that handle SALT POS taxes, including Amazon FBA and Shopify.
However, what's happening here is that Amazon is deemed to have created sufficient nexus for the sellers using FBA. Because Amazon is acting as an agent of the seller, and is storing the seller's goods in California, the seller is deemed to have nexus through their agent, Amazon. This is a long-standing interpretation of the law that has been upheld many times.
Generally, Amazon should have handled the collection of sales taxes for the sellers, but since it did not, the principal (the seller) is legally responsible for paying them.
That was the argument California used, but it was never tested in court and there were strong arguments against it. You're basically repeating California's legal opinion as fact.
Then, the Supreme Court ruled last year that nexus doesn't matter, states can tax outside retailers regardless. So many states passed new laws doing just that.
The question of whether inventory in FBA creates nexus is still relevant for back taxes, and it's possible that will go to court at some point, although it seems likely California will end up waiving back taxes.
They simply eliminated the physical nexus requirement of Quill. There are still (undefined) economic thresholds required for nexus for taxing out-of-state retailers.
If you sell $5 of stuff into a state, you aren't subject to sales tax collection in that state. If you sell $100,000 of stuff into a state, you are. Unfortunately, the exact threshold where you have economic nexus varies from state-to-state and not every state has yet updated their laws for Wayfair.
However, physical nexus still exists (it's "stronger" than economic nexus), and that is why California treats Amazon FBA inventory as giving rising to nexus. It doesn't matter that it has never been tested in court--it's been generally accepted law in the US for decades (predating Quill) and it would take a court ruling for it to be otherwise. (In fact, part of the Quill decision was premised on the fact the seller did not maintain an office, employees...or inventory...in South Dakota and thus had no physical connection to the state.)
The issue is there are arguments on both sides how to apply the general accepted law. Do you treat it as seller owned inventory, or do you treat it as consignment? Does commingled inventory belong to a seller, and if so, at what point does title transfer if the seller has not had a sale? If two people send inventory to Amazon, it's commingled, and Amazon stores one of the units in California, which seller has physical nexus?
Taking California's position on these legal questions may be the pragmatic approach if someone wants to avoid legal risk, but it's by no means clear that they're right under established law. You're entitled to your legal opinion, but so are others, and other tax lawyers have weighed in and believe California's argument is incorrect here. Given that the issue hasn't been decided in court and there are lawyers arguing both ways I don't think it's right to say that clearly one side is right.
Also, when California imposed a state sales/use tax collection obligation (effective April 1) on out-of-state sellers with more than $100,000 in sales or at least 200 transactions in the state in the current or preceding calendar year, it also required in-state and out-of-state sellers to collect and remit district sales/use tax in any district where they surpassed the $100,000 sales/200 transactions threshold.
Here's the clincher that has created a real headache for a lot of sellers. The law that was enacted April 25 retroactively supersedes the previous April 1 rule. So, as of April 1, the transaction threshold is eliminated, and the sales threshold is now increased to $500,000.
The new law also eliminates the need to track sales in each district. And, starting October 1, 2019, it requires marketplace facilitators to collect sales/use tax on behalf of third-party sellers.
To be fair, the changes adopted by the legislature should make sales tax compliance a bit simpler for in-state and out-of-state sellers alike. While many businesses are undoubtedly pleased with the new policy, the fact that California adopted one set of rules/requirements as of April 1, changed them weeks later (as of April 25), and set more changes for the not-too-distant future is frustrating.
Originally from Chicago, he worked from Wisconsin while raising his family, and then for nearly 20 years in California. He had a very midwestern attitude regarding government which is unfortunately waning. I forgot what prompted the comment (perhaps I was complaining about Calfornia's $800 franchise fee), but he once commented that if you can't be bothered to pay and stay current with the $800 franchise fee you shouldn't be in business at all.
The $800 fee seems excessive, I feel like it's an impediment, and I've had my own run-in with the CAFTB that left me feeling railroaded. But frankly I find it hard to dispute his point.
The important thing is that the CAFTB is no joke, so if you're in California or even a resident elsewhere doing business in California, be diligent about paying California taxes or be prepared to aggressively defend yourself when they inevitably come knocking at your door (or digging through your trash, harassing your neighbors, or poisoning your dog[1]).
[1] That last one was a joke, or at least unsubstantiated.
This is categorically false. In my practice as a tax lawyer, I deal with the FTB all the time and they are not only more than reasonable--they are willing to bend over backwards to help my clients comply with CA tax laws and to waive penalties. The IRS, on the other hand, especially under the current administration, is unwilling to negotiate on anything unless you have political connections to the administration.
If you are a small business, CA is the best place for you unless you don't care about making money. CA has the largest and best-educated employee base, the largest customer base, and the largest network of manufacturers, distributions, and various service providers you could ever need. There's a reason that CA has been one of the top 10 economies in the world for decades straight.
Your statements appear to be specifically calibrated to be totally false yet believable to people who know nothing about the subjects in question and I find this dishonest and disagreeable.
Thanks for letting the cat out of the bag on what business is: exploiting labor and the environment.
Ah, that explains why California leads the nation in agriculture, manufacturing, entertainment, logistics, and service industries (except finance). Because it's such a terrible place to do business that it can't possibly be the 5th largest economy in the world (and in the top 10 largest economies in the world for the last 3 decades straight).
Within several blocks of my office are hundreds of successful small businesses, none of which are tech companies. They're all doing fine. On my way to and from work, I pass hundreds more similar companies ranging from small mom-and-pops to multi-billion dollar multinationals, all so busy that they're hiring employees like crazy.
But sure, go ahead and tell people that CA is a terrible place to do business. Reality says otherwise.
Granted this was an LLC that was pulling in less than $10K/mo, so not really big fish, but still...my dealings with the FTB have been less than pleasant.
Doesn’t CA have a use tax law like other states requiring taxpayers to file and pay the sales tax as part of their yearly income tax filing?
I know most people commit tax fraud and fill 0 in on that but in the case of people who did pay those use taxes, the state is now double dipping and getting the money from the retailer as well as the customer.
This is in contrast to something like Hawaii's GET, which is a tax on the seller that is "passed on" to the buyer.
https://www.boe.ca.gov/sutax/faqtaxrate.htm#1
People always have gripes, some valid and some invalid, against the powers that be.
One difference with the American revolution was a willingness to commit acts of violence against British soldiers. I would hope we're able to resolve most of our gripes without resorting to the horror of war.
The only job of government.
Don't make it sound unreasonable.
Presumably there will be a host of new web based startups offering a one-stop tax collection service for all jurisdictions in the world.
Enormous costs imposed on me and others for very little benefit.
I don't know the names and couldn't recommend one if I did, but when she was at her previous job I asked if it was really a big deal deal and when she started to tell me it was like opening the gates of hell... Seems like if there are two such companies on the west coast there must be several at least.
What California is doing is unconstitutional and they should be slapped, hard.
In this case, the law merely clarifies the state's long-standing position on sales taxes based on pre-existing state laws, so it is arguably Constitutional for them to seek retroactive sales taxes. Whether it is wise for them to do so is another matter.
Merchants ALWAYS had to collect sales tax for sales to any state in which they have nexus. The only thing South Dakota vs. Wayfair changed is the standard for nexus -- previously, you had to have physical presence[1] in the state, but now states can define substantial nexus as making a certain number and/or dollar value of sales to the state.
You ALWAYS had to remit sales tax to any state you warehouse merchandise in (except for Virginia and New York, which do not consider merchandise in third-party warehouses to create nexus). Amazon ALWAYS screwed merchants over by moving Fulfilled By Amazon / Amazon Multichannel Fulfillment merchandise around willy-nilly and creating tax obligations for the merchants. (Note: Once you have nexus in a state, you have to collect and remit sales tax for ALL sales in that state, not just those from the warehouse in that state[2]). Some of their competitors, like Ship Bob and Deliverr, do the same thing -- it's all based on the nasty attitude that the consigned merchandise in their warehouses belongs to them, not the merchant (who it actually belongs to). Most merchants appear to handle this by either flagrantly breaking the law, or by being too stupid to realize they have physical presence outside their home state.
California AB 147 is one of the many bills that states are passing in the wake of South Dakota vs. Wayfair to set non physical presence based substantial nexus standards. In the case of California, AB 147 sets the threshold at $500,000 gross sales to California addresses.
The Times article says that California is going after small out-of-state merchants under the new law. Bzzt! They are going after out-of-state merchants who had physical presence and had already been shirking their tax responsibilities for years. They would have been going after those merchants anyway, AB 147 or no AB 147.
Anyone who lies down with wolves (FBA), doesn't do due diligence and complains they got fleas is getting what they deserved.
The LA Times article also says that the bill requires marketplace facilitators to collect taxes in order to help small out-of-state businesses, which is another instance of the article's author failing to read and understand anything at all. The bill requires marketplace facilitators to collect taxes because most of the merchants doing business through the marketplace facilitators fall below the $500k substantial nexus threshold and would thus be exempt; by declaring the marketplace facilitator as the retailer of record, California is able to collect taxes on the aggregate sales through that marketplace facilitator where the sales would otherwise be considered exempt.
I am not a lawyer and this is a rant, not legal advice.
[1] Or certain other things that trigger nexus, such as sales agents. [2] Although, if the merchandise stored in that state is used only to fill orders outside that state, it doesn't create a market in that state and might be argued not to create substantial nexus. Do you feel lucky, punk?
Can't ninja edit my post for some reason.
You just submit it all to the Federal government (or Quebec government for just Quebec) and they deal with the distribution to each province.
For example I get taxed by DigitalOcean based on what my billing address is set to. DigitalOcean then takes that tax sends 9 provinces worth of it to the CRA and 1 (Quebec) to the Revenu Québec.
My company has an online presence, selling and shipping out of one state, on our own custom-developed online platform. We also have a very large "offline" business selling in-store visual merchandising material to major retail chains. But it's all produced in and shipped from one state. We also have a small New York sales office.
In the past, we have only had to collect sales tax for three states. Our home state, New York, and California. California is interesting. They decided that since we travel there a lot, and do a significant amount of business there, we have a business nexus there. The key was really the amount of travel we do there, even though we have no CA office.
But now, with the Wayfair ruling, the bar has been substantially lowered. An economic nexus is now sufficient to require us to collect sales tax. We decided to get ahead of the freight train heading our way. Rather than waiting for the states to come knocking on our door, we ran the numbers and determined that we now need to file in about 75% of the states. This is a huge burden. Even calculating the tax is a nightmare, not to mention filing.
Thankfully, I was already leading a project to integrate a 3rd-party tax calculation service into our ERP, so the calculation side of things is covered. Filing is another matter. For that we engaged our accounting firm, who offers filing as a service. It isn't cheap, but it's cheaper than hiring the additional staff it would have taken to keep up with this.
I expect that these types of calculation and filing services are going to be doing a lot of additional business very soon.