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07/17/2019
California gives marketplace sellers limited sales and use tax relief
On June 27, 2019, California Gov. Gavin Newsom signed legislation to allow marketplace sellers who had previously been contacted by the California Department of Tax and Fee Administration (CDTFA) to participate in a new program called Deficiency Determination Limitation (DDL). The DDL program will provide sales and use tax relief to marketplace sellers that do not qualify for a voluntary disclosure agreement.
Starting in December 2018, the CDTFA sent letters to marketplace sellers requiring them to register, collect, and remit sales and use tax based on the information they received from Amazon and other marketplace facilitators. Most marketplace sellers did not realize that when Amazon and other marketplace facilitators stored their inventory in a California location, their sales would be subject to California sales and use tax. The first Amazon warehouse opened in California in October 2012, which may have created significant exposure for some retailers.
Without this DDL program, the CDTFA will hold marketplace sellers liable for up to eight years of back taxes, interest, and penalties.
The DDL program will provide marketplace sellers who meet the conditions of a “qualified retailer”:
- A limited look-back period from April 1, 2016 – March 31, 2019; and
- Abatement of penalties for sales made for the period April 1, 2016 – March 31, 2019.
A marketplace seller is a “qualified retailer” if they meet all the following conditions:
- The retailer is not registered or has not registered with the CDTFA prior to Dec. 1, 2018
- The retailer did not file sales or use tax returns, or made sales or use tax payments, prior to being contacted by the CDTFA
- The retailer’s only activity to cause it to be engaged in business in California is the use of a marketplace facilitator to facilitate sales for delivery in California and the marketplace facilitator stored the retailer’s inventory in California
- The retailer voluntarily registers with the CDTFA within 90 days (Sept. 25, 2019) and files completed tax returns for all required periods, and either:
- Pays the tax due in full, or
- Applies for a payment plan, with a final payment due no later than Dec. 31, 2021
What does CohnReznick think?
Many marketplace sellers were hoping Gov. Newsom would grant an amnesty, as the California treasurer has been lobbying. While the legislation is not the best news, it is a good opportunity to limit a marketplace seller’s sales and use tax exposure. It is expected that once the 90-day period expires, the CDTFA will aggressively pursue marketplace sellers who have not complied with previous letters or did not take advantage of the DDL program.Contact
Scott Smith, Director, State and Local Tax Services
973.364.7720
Krista Schipp, Director, State and Local Tax Services
818.205.2616
Subject matter expertise
Scott Smith
Director, State & Local Tax
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