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Desperate Amazon Seller Sues over California Taxes

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Desperate Amazon Seller Sues California Tax Officials

An Amazon seller from Illinois said California’s tax agency froze her bank account just days before Christmas and took over $2,000 from her account. Now she’s fighting back, and it’s a matter of survival.

Isabel Rubinas filed a civil rights lawsuit in federal court against the California Department of Tax and Fee Administration (CDTFA), the state agency that oversees the collection of sales and use taxes.

Rubinas alleges in the suit that CDTFA is “crushing” her online business and the businesses of thousands of other sellers. The complaint alleges: “California’s tax collectors have reached deep into Illinois to crush a small children’s clothing boutique owner. Not because of what she did, but because of what California tax officials did for nearly a decade and now need to clean up – they let Amazon avoid collecting taxes on most sales in Amazon’s store.”

In a declaration to the court, Rubinas described the dire plight in which she finds herself, writing in part:

“Not only is this situation causing me distress, CDTFA may destroy my business and livelihood. My business was down 75% in 2020 due to the pandemic as consumers cut discretionary spending. As I mentioned above, my business is operating at a loss – I cannot pay the $10,000 CDTFA demands. I have various commercial financing obligations that I need the money in my Chase account to cover. For example, I owe Amazon for storage fees on January 15. When Amazon tries to draw the payment from my Chase account and finds the funds inaccessible, Amazon can seize my inventory and sell it for pennies on the dollar.”

The Online Merchants Guild, a not-for-profit trade association, announced the lawsuit in a press release on Friday. “The complaint alleges that the duty to collect sales taxes should have fallen on Amazon, which acts as a virtual consignment store and should have been treated that way.”

The Online Merchants Guild also said that the complaint filed on January 7th includes a letter from California Treasurer Fiona Ma to Governor Gavin Newsom “advising him the tax collection is illegal and morally wrong for the state to be going after small businesses that seized the opportunity that Amazon and other online platforms presented.”

Rubinas’ attorney is Paul S. Rafelson of the Florida law firm Rafelson Schick, PLLC who also volunteers as Executive Director of the Online Merchants Guild.

In 2018, a tax compliance service for online sellers called TaxJar reported that Amazon was notifying sellers it was complying with the California tax agency’s demands that Amazon turn over records on third-party sellers.

TaxJar reprinted the letter Amazon sent to sellers, which read in part, “To comply with our obligations under the law, we plan to provide this information to the CDTFA by November 6, 2018. In many cases, sellers who register and file taxes in California already provide information on their Amazon business as part of their tax filings. Because each seller’s business and tax needs are unique, we encourage you to consult with a tax advisor to answer any questions you may have.”

The TaxJar blog post provided context and offered resources to sellers who were impacted.

Ironically, three weeks before allegedly freezing the Illinois seller’s bank account last month, the CDTFA issued a press release on its website offering “immediate tax relief to small business owners.”

Ina Steiner on EmailIna Steiner on LinkedinIna Steiner on Twitter
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.

2 thoughts on “Desperate Amazon Seller Sues over California Taxes”

  1. “a virtual consignment store”

    These lawmakers really need to get their terminology straight. WE SMALL BUSINESS OWNERS DO NOT USE MARKETPLACES SO THEY CAN MAKE CLAIM TO ANY PART OF OUR BUSINESSES OR OUR PRODUCTS!

    We are actual businesses, wholly owned by individuals, selling our wares on an online mall — not an online store (most marketplaces do not have their own products, while Amazon steals popular ideas from its sellers, making their own products so they can compete against the owners of the idea, placing their products at the forefront while hiding competitors.

    Get it straight and stop looking for ways to steal from us!

  2. One thing I have yet to see any of these cases mention…

    Did Amazon tell them where they were storing their products? Did they even make the seller aware that there might be taxes due for storing their products?

    Of course, if the laws weren’t even if effect during the time they’re trying to collect for, then this should be a non-issue. Even if the laws were in effect, Amazon should be responsible if they didn’t provide sellers the above info. A seller couldn’t possibly know taxes were due if they had no idea where their items were being stored. Plus, there are those inexperienced sellers who wouldn’t even think taxes would be due on stored items. It is Amazon’s responsibility to make their customers aware of everything involved in the services they provide.

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