California Limits Lookback Period for Certain Marketplace Sellers

California has enacted legislation that limits the lookback period for assessing sales and use tax on certain out-of-state marketplace sellers making sales into California and for which the marketplace facilitator stored their inventory in California. The legislation prohibits the California Department of Tax and Fee Administration (CDTFA) from assessing sales and use tax on sales made by “qualifying retailers” prior to April 1, 2016. Additionally, the CDTFA will waive any penalties imposed on a “qualifying retailer” for sales made between April 1, 2016 and March 31, 2019. This appears to be the compromise between the Governor and Treasurer who requested that the Governor direct the CDTFA to cease collection activities against FBA sellers.

Effective June 27, 2019, a retailer is a “qualifying retailer” if they meet all of the following conditions:

  • The retailer is not registered or has not registered with the CDTFA prior to December 1, 2018.
  • The retailer had not filed sales or use tax returns or made sales or use tax payments prior to being contacted by the CDTFA.
  • The retailer voluntarily registers with the CDTFA, and by September 25, 2019, files completed tax returns for all tax reporting periods on and after April 1, 2016, and pays in full the taxes due or applies for an installment payment agreement, but only if final payment under the terms of the agreement is paid no later than December 31, 2021.
  • The retailer is or was engaged in business in California solely because the retailer used a marketplace facilitator to facilitate sales for delivery in California and the marketplace facilitator stored the retailer’s inventory in this state.

A “qualifying retailer” will not be assessed tax by the CDTFA on sales made prior to April 1, 2016 and will be relieved of penalties for sales made for the period April 1, 2016 to March 31, 2019. However, this does NOT provide relief to taxpayers that were contacted prior to December 2018 and have registered but are under audit unfortunately. Due to this very limited program, any FBA seller that is not currently registered should consider participation since if California identifies the seller after September 25, 2019, they will be able to assess to the original date inventory entered the state which could be as earlier as 2012. Click here to get the details on California’s economic nexus ruling and click here for more information on the state’s nexus rules for marketplace facilitators.

(Special Notice L-681, California Department of Tax and Fee Administration, July 2019; S.B. 92, Laws 2019)

Posted on July 17, 2019