The California Court of Appeal, Second Appellate District released a decision on January 9,2023, confirming the CDTFA had the legal discretion to hold third party sellers responsible for the sales tax due on sales made through Amazon. In the decision, the appellate court sided with a trial court ruling which sustained arguments from both the CDTFA and Amazon and refused leave for the plaintiff, Stanley Grosz to amend his complaint. The court wrote in its decision that the California Sales and Use Tax Laws and their framework give the CDTFA the full authority to decide whether a party is a retailer for tax purposes, noting, importantly, that this decision is a determination the CDTFA is entitled to make and not a mere ministerial task. As a result, Plaintiff Stanley Grosz’s was without the legal standing required to sue the CDTFA to get the department to treat Amazon as the retailer.
California has been seeking payment from out-of-state third-party sellers on transactions before mid-2019 in relation to goods sold through the Fulfillment by Amazon (FBA). Since the state is looking at sales which occurred before the ruling South Dakota v. Wayfair Inc., they need to establish physical presence, which California claims is established by the storage of goods in Amazon’s California fulfillment centers. The unpaid taxes on these sellers, California argued, can be staggering, and several of these third party sellers have filed suits claiming that Amazon was the true retailer and should be held liable instead of them due to Amazon’s control of the final sale and fulfillment of the goods.
In this case, Grosz, who runs a camera store within California, claimed the CDTFA should treat Amazon as a consignment seller as described in Cal. Code Regs. Tit.18, section 1569, and thus Amazon should be liable for the tax on these pre-2019 sales. Grosz argued that FBA Amazon sales met the three requirements to be considered a consignment seller, namely, the consignment seller must have possession of another party’s goods, have the power to transfer the title of the goods to a buyer without input from the original owner, and the consignment entity exercises that power to transfer ownership of goods.
However, the CDTFA argued this regulation does not require any entity be considered “the” retailer, merely that they consider entities as “a” retailer. The court went on to highlight the CDTFA’s broad discretion in tax matters since tax “may” apply in any given situation, it falls to the CDTFA to determine any questions related to sales and use tax law including which party owes tax, who collects it, how it is collected and when the tax is collected. Further, the court noted, even if they had limited the review in this case solely to Regulation 1569, the regulation does not command the CDTFA as to which party should be taxed, be it Amazon or the third-party sellers.
The court decided that because of the CDTFA’s power over sales and use tax, the case could not go any further, a decision plaintiff Grosz contended would make the legal merit of the CDTFA’s decision unreviewable. The court ruled this was not true and pointed out Grosz could pursue his claims via a tax refund action or by filing suit against a collection action. In fact, in at least one similar case, Online Merchants Guild v. Maduros, filed in and dismissed from federal court, the parties in have said they may appeal to the US Supreme Court after being rejected by the Ninth Circuit Court of Appeals in November 2022 due to the Tax Injunction Act.
(Court of Appeal of the State of California, Second Appellate District. Stanley E. Grosz v. California Department of Tax and Fee Administration, Et Al. 9 Jan. 2023. Additionally, Jones, Paul. “California Appeal Court Sides with CDTFA, Amazon in Sales Tax Fight.” Tax News, Tax Articles and Information – Tax Notes, 11 Jan. 2023.)