California enacts changes to recent remote seller provisions
INSIGHT ARTICLE |
On June 27, 2019, California Gov. Gavin Newsom signed Senate Bill 92, providing for various changes to the state’s remote-seller sales tax provisions. The changes are highlighted below.
Penalty abatement for retailers using marketplace facilitators
California is offering a limited penalty abatement to retailers with “inventory nexus” for sales made between April 1, 2016 and March 31, 2019.
In the past few years, retailers have increasingly used fulfillment and marketplace services to sell and manage inventory, but many retailers have discovered that this has increased their nexus footprint. “Inventory nexus” is created when the marketplace facilitator transfers retailer-owned inventory to warehouses around the country, thus establishing nexus for the retailer through physical presence in those locations. In 2017, the Multistate Tax Commission attempted to address this growing nexus activity by offering a limited voluntary disclosure program for retailers using marketplace fulfillment services.
Recently, the California Department of Tax and Fee Administration has increased enforcement of retailers who have this “inventory nexus” due to their use of marketplace facilitator and fulfillment services. Senate Bill 92 provides some relief for these retailers by eliminating penalties for qualifying retailers with respect to sales made from April 1, 2016 to March 31, 2019. A qualifying retailer is one that:
- Has not registered with the department for sales and use tax purposes prior to Dec. 1, 2018
- Has not filed sales or use tax returns or make sales or use tax payments prior to being contacted by the department
- Voluntarily registers, files completed tax returns for all tax reporting periods for which a determination may be issued by Sept. 25, 2019, and either pays in full the taxes due or applies for an installment payment agreement
- Was/is engaged in business in California solely because the retailer used a marketplace facilitator, as defined under California law, to facilitate sales for delivery in this state and the marketplace facilitator stored the retailer’s inventory in the state
In order to receive the penalty relief, retailers may need to follow certain administrative and filing requirements. As of the date of this article, qualifying retailers have fewer than 90 days to take advantage of the penalty abatement. Retailers using marketplace facilitators for fulfillment services and that may have established inventory nexus in California should speak to their tax advisers about this limited penalty abatement.
For more information on considerations when using fulfillment services, please read our article, Fulfillment by Amazon is a game changer: Is your business prepared?
District use tax collection
Recall that on April 25, 2019, California enacted a $500,000 remote seller nexus threshold effective retroactively to April 1, 2019. The legislation also provided that remote retailers are required to collect the district tax (based on purchaser location) when the sales threshold is exceeded on a state basis, not a district-by-district basis. Those provisions were intended to simplify the determination of whether district use tax is to be collected by remote retailers.
Senate Bill 92 modifies the operative date of the district use tax collection provision from April 1, 2019, to April 25, 2019, effectively eliminating any retroactive effect for the district collection requirements. For state tax purposes, the operative date of the remote seller provisions remains April 1, 2019.
Accordingly, solely for district use tax collection purposes, if a remote seller exceeded the $500,000 threshold in the 2018 calendar year or during the period from Jan. 1, 2019 through April 24, 2019, then district use tax collection is required beginning on April 25, 2019. The department has recently released Special Notice L-684 to further explain the amended requirements.
For more information on the state’s remote seller provisions, please read our article, California enacts $500,000 remote seller nexus threshold.