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
Scott Smith, Director, State and Local Tax Services
973.364.7720
Krista Schipp, Director, State and Local Tax Services
818.205.2616
Related Services
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
-
TopicHousing tax credit data analysis and reportSince 2012, CohnReznick’s Tax Credit Investment Services group is responsible for the nation’s most comprehensive analysis of its kind on the housing tax credit program. By tracking and analyzing the performance of more than 21,000 housing credit properties, CohnReznick’s reports help developers, investors, and other industry participants to establish best practices for acquiring, underwriting and managing tax credit investments, benchmark portfolios, examine operating expenses, and gain insight into the housing tax credits industry.
-
InsightNew Jersey provides guidance on its unitary business test and combined reporting requirementThe New Jersey Division of Taxation has provided technical guidance (TB- 93) regarding its unitary business test. As previously discussed, for tax periods ending on or after July 31, 2019, New Jersey will require business entities that meet the unitary business test to be included in a combined income tax return.
-
On-demandWhat you need to know now: State taxesJonathan Collett, Cynthia Galamgam, Matthew NickWith the increasing complexity of state tax rules, particularly in the past year, it is crucial for investment professionals to have a basic understanding of the current rules and how they apply to their business. Today, nexus is the biggest state tax risk facing most multistate businesses, and nexus issues are particularly important for private equity funds and portfolio companies. The proper understanding and application of these rules are crucial, as the potential consequences of failing to manage compliance with state laws and regulations can be crippling.
-
Insight10 Questions: The Wayfair Decision – Economic Nexus and the Impact on Marketplace Collection for Sales TaxIn June of 2018, the United States Supreme Court issued the landmark Wayfair decision which will forever impact sales across state borders. Fast forward fourteen months, and over 20 states are now also opting to impose sales tax collection obligations on online “marketplace facilitators.