I have an Amazon FBA business and I received a letter from The California Dept of Tax and Fee about having to register because I have a nexus there. Do you think I really have to register or can I just ignore the letter?
First, I’m a sales tax accountant and register/file for FBA sellers and others. Second, yes, the CPA gave you bad advice, but probably not for the reasons you think. Third, don’t trust the opinion of Online Merchants Guild as they are wrong on the law, and wrong on the facts.
Next, with the exception of NY, and the states that impose no sales tax, inventory stored in a state obligates the FBA Seller to collect, file, and remit because this meets physical nexus (ie having inventory stored within the state). Because of this, any sale made to customers in those states from other platforms is also subject to sales tax.
Now, CA requested from Amazon information on companies that have inventory there in 2017. The letter goes on giving the seller until 1/15 to register, and informs the seller to register on the correct date, and that those that do may have penalty waived.
I had several clients call the state to ask what is the date that CA has for a start date and each were told that the state does not have that information. So, the date you choose to register is arbitrary, and is in effect, a roll of the dice. I suspect that these letters are more of a tactic to get sellers to register, rather than a concentrated effort to determine the exact date the company started — if you register and start collecting, filing, and remitting, you should be fine.
So, what happens if you ignore the letter?
Things will probably get a bit messy. My opinion is that at some point in the future, CA will send you a nexus questionnaire which will ask questions about specific dates and activities:
– What do you do in CA?
– Do you store inventory here?
– When is the first date you stored inventory here?
If you ignore this letter, it escalates from here. The state can impune sales, make determination on sales taxes owed on those sales, and obtain judgements — all while you aren’t involved. Once they have the judgement, they can garnish your bank account.
The basic problem with the letter you received, is that we don’t know how much of it is a bluff, and how much of it will be strict enforcement.
Normally when clients receive this letter (if their sales are small), I tell them get registered going forward as soon as possible and ignore the past obligations. However, this letter is different in that it is specific to 2017 — meaning that CA knows you have activity since at least 2107. So, at minimum you should register back to at least 1/1/2017, file the delinquent returns, pay the tax and interest, and then apply for a penalty waiver. However, if you have been in CA prior to that date you need to assess your risk. Is it low? Is it something you could pay if CA audited you?
Again, as Janice stated, it’s best not to ignore any letter you receive from any state. In this case, the correct action to become registered — even if it’s just on 1/1/2019 and then hope that will be enough to keep CA satisfied.
Chris Stout is the owner of SalesTaxSolutions, offering a wide range of affordable sales tax solutions.