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OMG Challenges California’s Illegal Pursuit of Amazon Merchants for Back Taxes: Asks Court to Uphold Wayfair Protections

Online Merchants Guild (“OMG”) files lawsuit to challenge California’s illegal pursuit of Amazon merchants for back taxes while seeking clarification of Wayfair protections.

For Immediate Release:

Today, Online Merchants Guild filed suit in the Eastern District of California Sacramento Division against California’s Department of Tax and Fee Administration (“CDTFA”). 

  • The lawsuit challenges CDTFA’s multi-year illegitimate pursuit of Amazon sellers for uncollected sales tax that Amazon, not the individual merchants, owes.  
  • Unlike the Grosz a case filed last year under the government waste doctrine by Fresno resident Stan Grosz to recover billions in unpaid sales tax that Amazon owes, this unrelated case focuses on the civil rights aspects of California’s unlawful assertion of tax liability against small out of state sellers who lack sufficient contacts with the state to be subject to their tax regime, nor owe the tax pursuant to state law, as the state’s Treasurer, and former state sales tax board member, Fiona Ma has explained in her letter to Governor Newsom and testimony to Congress

Paul Rafelson, OMG’s Executive Director, described CDTFA’s historical and unlawful pursuit of small Fulfillment by Amazon (FBA) merchants over the last few years. 

“As detailed in the complaint, Amazon FBA merchants have been bullied for years by CDTFA and their pro-Amazon (vs out-of-state merchant) policies.  The complaint also addresses how CDTFA knew, since 2012, that Amazon was liable for the tax, but they made a political point of not holding Amazon liable so as not to impair with their chances of earning Amazon’s next headquarters or other investments in the state, costing Californians billions in lost tax revenue.  In 2017, CDTFA sought to mitigate the unnecessary loss of billions they caused in their political dealings with Amazon by pursuing small out of state businesses with no connection to the state, in violation of the FBA merchants’ civil rights.” 

While the suit addresses the issue of uncollected taxes in Amazon’s store that CDTFA claims merchants owe, it also raises challenges to tax policies that make it difficult for startups and small businesses to survive.  Most notably, the CDTFA’s dismissal of Wayfair protection for any business owner that uses Amazon’s fulfillment services, where sellers supply goods to Amazon on consignment for sale in Amazon’s store.  Rafelson describes the problem as follows: 

“Legislation was passed by the assembly in 2019 to protect small out-of-state businesses by ensuring that they would not be burdened by tax obligations until their sales in the state reached $500,000.  However, if just one ten-dollar item is placed within California’s borders, by Amazon, via FBA, the railroad of eCommerce, CDTFA policy is that the protection is no longer applicable.”

“If every state were to adopt this position then a small business could find themselves subject to the same tax compliance burdens as Walmart or Target, just by virtue of Amazon distributing their goods across its network of distribution centers, even with minimal sales.”  These compliance costs can exceed six figures, on a 50-state basis, with over 12,000 jurisdictions in play.”

Rafelson described this case as being important “in this time of income inequality,” going on to state that:

“eCommerce has been a place for entrepreneurs to thrive, a place for opportunity for people who have been on their luck, like so many of our members have been at one time, and a place where people with no other opportunity due to their geographic placement, have found a way to thrive.  Most importantly, eCommerce is the playing field leveler that gives all people equal access to thrive in the national economy in ways that were completely unimaginable even as recently as 15 years ago.”

Rafelson continued by noting that:

“eCommerce is our nation’s greatest source for socioeconomic progress, and that progress needs to be protected from shameless states that have no respect or concern for the harmful impact their actions have had on our nation’s eCommerce economy, and the people who rely on eCommerce as a source of income.  The CDTFA and other states should reconsider their actions.  And, while I’m disappointed it has come to this, I’m proud of our members for working together to make this happen.  It has been a long time coming, we tried to avoid it, but we could never overcome Amazon’s political influence.”

Rafelson exclaimed.

OMG will be represented by the following attorneys in this matter: Candice Fields of Candice Fields Law (Sacramento, CA), Aaron Block of the Block Firm, LLC (Atlanta, GA), and Paul Rafelson of Rafelson Schick, PLLC (Boca Raton, FL).

A full copy of the complaint filed on September 29, can be found by clicking here.  Please direct all inquiries to paul@onlinemerchantsguild.org