Recently some of our California TaxJar customers have received this message in their email:
Here’s the text transcribed:
Amazon has received a valid and binding legal demand from the California Department of Tax and Fee Administration (CDTFA) requiring that Amazon disclose the following information about your business in 2017:
- Contact information (name, address, and email)
- US Taxpayer Identification Number
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.
You also may refer to the following resources in Seller Central:
- Solution Provider Network, a directory with information about several tax advisors: https://sellercentral.amazon.com/gp/help/external/G20168789024.
- Tax calculation services, optional services for calculating U.S. sales and use taxes: https://sellercentral.amazon.com/gp/help/G20078766013.
Thank you for selling on Amazon,
What does this notice mean for Amazon sellers?
This is just another example of state taxing authorities, hungry for their share of eCommerce revenue, doing whatever they can to ensure that sellers with a presence in their state are registered, collecting, and remitting sales tax.
In the brick and mortar world, sales tax compliance has always been a cost of doing business. After the recent United States Supreme Court ruling, this same reality is becoming true for eCommerce and marketplace sellers.
If you are currently selling on Amazon and not collecting sales tax in the state of California, you will most likely get a letter from California.
Has this happened before?
We’ve seen this happen with Amazon sellers in New York, but the goal of their inquiry was slightly different than this one in California. In New York, it seemed that the aim of their investigation was to identify sellers who were collecting sales tax on Amazon purchases and pocketing the amount collected, which is unlawful in any state.
What does this notice mean for the future?
In the eCommerce world after South Dakota vs. Wayfair, it’s clear that the states are ready to take action. We’ve heard rumors leading up to this, and this is the second time that we’ve seen it actually happen – state taxing authorities are talking to Amazon. And they’re asking for 3rd party seller information.
We don’t expect the California and New York requests will be isolated incidents.
At TaxJar, we often talk about your risk tolerance. For example, if you live in California and have been selling on Amazon for two years, but only started collecting sales tax one year ago, then the CA Department of Tax and Fee Administration (CDTFA) may find that you owe the sales tax you should have collected from your buyers. If you were a tiny seller in that first, non-compliant year, then the interest and penalties may not harm your business’s bottomline. But if you should have collected a large amount of sales tax – and didn’t – you may have a larger exposure to risk that you should look into.
If you decide not to comply with sales tax obligations, always consider your risk. Here’s our post on “When to Register for a Sales Tax Permit” that may help you weigh risks vs. rewards for your situation.
Ultimately when & where you register for a sales tax permit is up to you. The only way to guarantee that your business is not at risk for an audit or investigation is to comply with the states and collect & remit accordingly.
I’ve never sent inventory to California, why did I receive this notice?
If you’re using Fulfillment by Amazon (FBA) to sell your products on Amazon, you may not have ever shipped inventory directly to California. However, in order for Amazon to provide 2-day shipping for your products, their logistics algorithms will take your inventory and ship it to multiple locations across the country to optimize for delivery speed. Sellers just getting started aren’t typically not aware of the sales tax implications that using Fulfillment by Amazon (FBA) has on their business.
After all, many sellers assume that if you don’t know where your merchandise is, the state can’t expect you to know where to register for your permit to collect sales tax. Right? Wrong.
Amazon Fulfillment reports do tell you where your inventory has been stored for any given period of time, it’s just not easy to figure out. For an instant look of where your inventory is stored, TaxJar will help you determine where you may have nexus due to Amazon FBA.
Simply start a free trial and look for the brown Amazon badge on your TaxJar dashboard.
And lastly, if you’re new to sales tax on Amazon completely, I recommend reading through our Amazon Sales Tax Guide to get up to speed.
Can TaxJar help me register for a sales tax permit in California?
Yes! TaxJar can help connect you with CPAs that will assist you in registering for a sales tax permit in any new state. Visit TaxJar.com/helpme and complete the form. If you’d prefer to register on your own, we have detailed instructions on how to register for a sales tax permit in California.
Check back here for more updates about sale tax compliance, Amazon and eCommerce as we receive them. Have questions or comments about sales tax on Amazon? Start the conversation in the comments.