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California Sued over Sales Tax Bills to Amazon Merchants

Online sales tax
California Sued over Sales Tax Bills to Amazon Merchants

The owner of a California-based camera shop sued the state’s sales tax division over what the LA Times referred to as its “gotcha” approach to tax collection. The newspaper explained in an editorial in May why some merchants who sold through Amazon’s FBA fulfillment service now face enormous bills.

FBA merchants say the state should be looking to Amazon for uncollected sales tax. The new lawsuit cites California Regulation 1569, which it says makes clear Amazon was acting as a retailer when selling FBA goods stored in its warehouses.

Press release follows:

Yesterday, Stan Grosz, Fresno resident and President of the Fresno-based Horn Photo camera shop filed a lawsuit against California’s sales tax division (“CDTFA”), calling out the state tax organization’s failure to make Amazon pay the state billions in uncollected sales taxes.

According to the complaint filed in Los Angeles County Superior Court late Tuesday, Grosz, a California taxpayer, brings the case under California’s government waste laws, citing CDTFA’s failure to make Amazon collect sales tax on Amazon’s marketplace sales for the last 3 to 8 years as a violation of their CDTFA’s obligations to enforce the law.

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By filing the lawsuit, Grosz is asking the court to require the CDTFA to assess Amazon for billions in back taxes related to uncollected sales tax from Amazon’s Fulfillment by Amazon program.

Grosz states that the CDTFA, was, and still is, required to make Amazon pay billions in back taxes from sales that Amazon claims are exempt because Amazon is merely a marketplace with respect to those sales, not a retailer under state law.

According to Grosz:

“Amazon is responsible for collecting and paying these taxes to the state, but instead of following the law and playing by the rules, Amazon tried to work-around them so they could sell stuff cheaper than local businesses, falsely labeling themselves as a marketplace, not a retailer. This has cost California taxpayers billions, and it’s all because, when it came to Amazon, CDTFA refused to enforce the law.

To support his position, Grosz’s complaint argues that Amazon had an obligation to collect sales tax on its marketplace sales based on well-established tax laws, such as California’s sales tax law on consignment sales – California Regulation 1569 – which states:

“A person who has possession of property owned by another, and also the power to cause title to that property to be transferred to a third person without any further action on the part of its owner, and who exercises such power, is a retailer when the party to whom title is transferred is a consumer. Tax applies to his gross receipts from such a sale.”

Paul Rafelson, one of the attorneys representing Grosz noted that:

“Despite numerous attempts to explain the situation, CDTFA refuses to do what’s right and is now putting Californians at risk of losing out on billions. ­­Therefore, we are bringing this action to hold CDTFA and Amazon accountable.”

Grosz is represented by the following attorneys/firms:

Mark A. Ozzello; Robert Friedl; Tarek Zohdy; Cody Padgett and Trisha Monesi of Capstone Law, APC
Marty Dakessian and Ruben Sislyan of Dakessian Law, Ltd; and
Paul Rafelson of Francissen Rafelson Schick, LLP.

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Ina Steiner
Ina Steiner
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.

One thought on “California Sued over Sales Tax Bills to Amazon Merchants”

  1. This could set a precedent throughout the sales-tax-collecting states. I’ve argued that a marketplace does not own my products or business and, therefore, has no business collecting sales tax on my sales when I do not individually meet a state’s threshold. It’s unclear if the business in this case meets California’s threshold, but, even if it does, I would think it would be the responsibility of the business to collect and remit sales tax due.

    However, this is a different situation where Amazon actually possesses the products in various warehouses that sellers have no control over. Under California Regulation 1569, Amazon would be held responsible and that law has been in effect since 1933. So the plaintiff stands a very good chance of winning the case.

    That brings to question who’s responsible when a seller is selling third-party products directly on their site? I’m beginning to sell affiliate products and, while Amazon is the only affiliate I’m currently set up with, I will become affiliated with a number of sites. So, if my sales within a state reach that state’s threshold, who’s going to be responsible for collecting and remitting the sales tax? Which state should get the tax? The state where it was sold, the state it was sold from, or the state where the products were stored? It sure as heck can’t be all three as that would be triple taxation.

    This is definitely something that needs to be handled by the federal government because all these states could have laws that result in customers being taxed by multiple states. However, in this case, it’s clearly California’s fault for not enforcing its own laws. I think they should be made to eat it rather than going after back taxes.

    It’s just like all the states that had use tax laws they didn’t enforce. Now they’re trying to make merchants responsible for that, too. Don’t get me wrong, I get that states are losing sales tax revenue and things need to change so they aren’t. However, states need to enforce existing laws if they want that money and, if they don’t, then that’s on them.

    For a law that’s been in effect since 1933, there’s absolutely no reason California shouldn’t have been holding Amazon responsible from the beginning. The same goes for all those use tax laws they never enforced and are now whining about and trying to hold those not responsible accountable for it. You can’t have laws in place, not enforce them, and then expect others to clean up your mess later.

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