California: Relief For Marketplace Sellers?

Monika Miles

The state of California is at it again! But this time offering some relief for out of state sellers. In a continuing quest to require out of state sellers who created nexus as a result of engaging in programs like Fulfillment by Amazon (FBA) to register and retroactively file in the state, CA has passed SB 92 and the California Department of Tax and Fee Administration (CDTFA) has issued guidance. On July 1, 2019, the CDTFA issued Special Notice L-681 pertaining to Senate Bill 92 that discusses a special tax relief program. This program is only available for “qualifying retailers.”

Who Qualifies?

A “qualifying retailer” is a marketplace seller that meets certain requirements. Please note that all of the following conditions must be met:

  • The business had not registered with the CDTFA under the Sales and Use Tax Law before December 1, 2018;
  • The business did not file sales or use tax returns, or make sales or use tax payments prior to being contacted by the CDTFA;
  • The business voluntarily registers with the CDTFA, and by September 25, 2019, files completed tax returns for all tax reporting periods for which a determination may be issued (that is, for periods on and after April 1, 2016), and either
    • Pay the tax due in full, or
    • Apply for a payment plan, but only if the final payment under the plan is paid no later than December 31, 2021;
  • The business is or was engaged in business in this state solely because it used a marketplace facilitator to facilitate sales for delivery in this state and the marketplace facilitator stored its inventory in this state.

A “qualifying retailer” will not be assessed tax by the CDTFA with respect to sales made prior to April 1, 2016, and will be relieved of penalties with respect to sales made for the period April 1, 2016 to March 31, 2019.

Filing Deadline

Similar to other amnesty programs offered across the U.S., timing is critical. It should be noted that, businesses who wish to partake in this program, must register with the CDTFA by September 25, 2019. This deadline is quickly approaching.

Why should I care?

If your e-commerce business is based outside of CA, and engaged with a fulfillment center provider (such as Fulfillment by Amazon, “FBA”), that provider likely placed your inventory into a center within CA. This created physical presence nexus in the state, and with it the obligation to register with CA to collect and remit sales tax from CA customers. Many out-of-state companies were not aware of this and now potentially face years of retroactive exposure.

Here are a few examples that we believe will help clarify this new law and some of the nuances associated with it.

Example 1

Joe Co. is based in MN and sells widgets into CA using the FBA model since 2014. Joe Co. received a notice from the state in October of 2018 and registered with the CDTFA on Oct. 15, 2018. As a result, he also applied for some relief through the MAP program. Joe Co. does not qualify under the CDTFA for the waiver of penalties or a reduced lookback period because he registered prior to December 2018.

Example 2

Bob Co. is based in MN and sells widgets into CA using the FBA model since 2014. Bob Co. like Joe, above, also received a notice from the state in October of 2018. He decided to ignore the notice and “wing it,’ not filing or doing anything further. Bob qualifies for the current program and can register by Sept. 25, 2019 for a reduced lookback and penalty relief.

Example 3

Sam Co. is based in MN and sells widgets into CA using FBA. Sam Co. has employees that reside in CA. In this situation the CDTFA is not able to grant tax relief to Sam Co. because the company has created physical presence nexus in the state beyond the qualification of SB92.

Inherent Unfairness

As you can see from the distinctions between examples 1 and 2, there is an inherent unfairness in the eligibility and timing. In example 1, Joe was trying to become compliant shortly after receiving a notice from the CDTFA. He effectively is punished for acting quickly as he does not qualify for the relief program while Bob in example 3 held out and now benefits from the program. Miles Consulting Group has conferred with our colleagues at the CDTFA who are currently in internal discussion with the department to mitigate these apparent unfairnesses in the program. Stay tuned for further updates soon.

How Do I Register?

Registration can be done via the CDTFA website. If you are a “qualifying retailer,” you should complete CDTFA-38-A, Relief for Marketplace Sellers per section  6487.07, available on their websiteand the form should be mailed to their Sacramento Office. However, this new law can be confusing. To help you navigate all the nuances of this law, it is best to consult with professionals, like Miles Consulting Group.

Next Steps

We recommend to out of state clients that they perform analyses to determine when they truly began to have nexus in CA, and then to assess their potential liability. Then they can make a decision on this relief program.

Have a question? Contact Monika Miles.


Monika founded Miles Consulting Group which focuses on multi-state tax consulting, helping clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for 12 years combined in Big 4 Public Accounting and private industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.

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