California Court Dismisses Amazon Seller Lawsuit against California Department of Tax and Fee Administration

A federal judge in California rejected an attempt by the Online Merchants Guild, an e-commerce trade group, to stop California from pursuing back sales taxes from Amazon sellers with inventory in in-state Amazon fulfillment centers.

The judge granted the California Department of Tax & Fee Administration’s motion to dismiss the lawsuit, citing the Tax Injunction Act which claims that state tax assessment and collection matters should be settled in state court, not federal. Per the order, the Online Merchants Guild can file an amended complaint within twenty days.

In a complaint filed in September 2020, the Online Merchants Guild alleges that California’s assessment of back taxes for Amazon sellers with in-state inventory is unconstitutional. The complaint states that out-of-state companies that participate in the Fulfilled by Amazon (FBA) program may not know their inventory is in a California fulfillment center.

Prior to California’s passage of marketplace nexus legislation in October 2019, marketplace facilitators like Amazon were not responsible for sales tax on their marketplace sellers’ sales. Individual sellers were deemed the retailers, not Amazon. And prior to California’s April 2019 economic nexus laws, remote sellers were not on the hook for sales tax unless they had physical presence in the state, such as inventory. According to the compliant, the CDFTA has gone after Amazon FBA sellers for retrospective taxes back to 2012.

The Online Merchants Guild claims in their compliant that the CDTFA’s requirement for remote sellers to pay uncollected taxes on Amazon sales violated the Due Process Clause and the Commerce Clause of the U.S. Constitution. They also allege the CDFTA discriminated against e-commerce in violation of the Internet Tax Freedom Act because the CDTFA did not impose tax and registration requirements on Amazon’s brick and mortar operations.

(Online Merchants Guild v. Nicolas Maduros, Director, California Department of Tax & Fee Administration, United States District Court, Eastern District of California, October 13, 2021)

Posted on January 14, 2022