FBA sellers are sometimes surprised to find out that states have a right to force them to collect sales tax and that states have the willingness or ability to find them. We address all these issues and more in our webinar entitled, The Fulfillment by Amazon (FBA) Seller’s Guide to Sales Tax. In the webinar we discuss various ways that states search for all companies, not just FBA sellers. Some of methods include auditing of your customers, tracking who receives 1099s in their state and information sharing amongst the states.
FBA sellers sometimes counter that none of these methods will work in finding them and that states are not really interested in them. We wish this were true, but it isn’t. Here’s a case in point. It involves California.
California has taken a very aggressive approach. They have even closed their voluntary disclosure agreement (VDA) program to FBA sellers now. They don’t allow Amazon FBA sellers to participate in the VDA program because California takes the position that having inventory in the California, does not only create nexus, but categorizes the seller with the inventory as an “in-state seller” as opposed to an “out-of-state seller” with nexus. The distinction is important as in-state sellers are those that California considers to have an actual location in California. They are asserting, that in-state companies are not eligible for a VDA. We have this information based on direct calls with the state, where the state admitted this is a new policy and that FBA sellers have been a topic of late. So far, California has worked with us in waiving penalties even without the VDA program, but this may not continue in the future.
Knowing that California was talking about FBA sellers, we figured it would only be a matter of time before we started receiving calls from FBA sellers stating that California had found them. We were correct. We began receiving calls last month stating that California knew they were FBA sellers and that California wanted the back taxes owed plus penalty and interest. When we received the first call, we were led to believe that California found one of the FBA sellers invoices in one of their customer’s audits. We have not been able to confirm this, but it is one of the ways we have mentioned.
These projects are in their beginning stages so our case study does not yet have a conclusion. However we anticipate our services will range from answering nexus questionnaires, to negotiating payments and penalty waivers to arguing tax due. The reason we wanted to show this as a case study is because we now have concrete evidence that states do care about FBA sellers and we think these first few calls we get will only be the tip of the iceberg. Our recommendation is that if your exposure is material, you need to be proactive in becoming compliant.