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For Immediate Release
March 10, 2019

Sacramento, California – In an open letter dated March 8, 2019, California State Treasurer, Fiona Ma, sent a formal request to California Governor Gavin Newsom to utilize his constitutional authority to direct the California Department of Tax and Fee Administration (CDTFA) to cease its unlawful quest for back sales tax collection from small third-party sellers who use online retail platforms, such as Fulfillment by Amazon (FBA).

“I write this letter to you in an effort to protect small businesses, both within California and worldwide, from the cost and compliance burdens related to taxes that they are neither well-positioned to collect nor legally responsible for under California law,” writes Ma.

Online Merchants Guild applauds California Treasurer Fiona Ma for her efforts to protect small online third-party Amazon sellers from unconstitutional sales tax government overreach. Millions of third-party sellers use online retail platforms, such as Amazon FBA. The CDTFA has been sending high-pressure emails and letters to third party sellers, directing them to register for assessment, and threatening penalties for non-compliance. Ma disagrees with CDTFA’s aggressive tactics:

“I believe CDTFA is ignoring the plain reading of California law. Instead, they are pursuing these small businesses with threats of audit, claiming they owe eight years of back taxes, and even going so far as threatening felony prosecution and imprisonment.”

The CDTFA’s actions have left small online retailers distraught, frightened, and facing bankruptcy.

“But the real travesty is that these actions by CDTFA, while unlawful, unconstitutional and impractical are also causing many of the third-party sellers to go out of business and into bankruptcy,” writes Ma. “In many cases those that are within the reach of CDTFA will go bankrupt if forced to pay back sales taxes. I recently received a letter from and spoke with Mindy Wright, a third-party seller who lives in Washington State. On January 24, 2019, Mindy wrote a letter to me that said:

‘Recently in last December we received a letter from California’s CDTFA asking us to comply with their tax rules and we did. After signing up with California business license department we are now collecting and remitting sale tax starting 1-1-2019. We did not realize that the CDTFA would go after us for the uncollected sales tax and income tax up to 8 years. Now we are facing tens of thousands of dollars in back taxes, penalties and interest. This alone will force us out of business and into bankruptcy. We just do not make much money and we are distraught and frightened.’”

Ma’s letter states that the CDTFA’s current treatment of small third-party sellers is wrong and has the effect of unduly impacting minority and women owned small businesses. She writes,

“We have an obligation to protect small online businesses and to ensure they are not crushed by a wrong-headed and retroactive administration of the state’s tax law. Putting an unbearable tax burden on many small kitchen-table enterprises trying to make a living on these online retail platforms simply does not make sense, and it is not consistent with our state laws, public policies, or our values.”

Ma requests action by the Governor to correct this error in the tax system.  Ma writes,

“As a former Member of the FTB Board and a former Member/Chair of the State Board of Equalization, I know that it is important to the integrity of the tax system that when an error by the state is identified, it should be corrected. I, therefore, urge your action to spare those who will lose their business if they have to comply with CDTFA’s demands. Let’s continue to lead the way for entrepreneurs everywhere by setting a tone of appreciation for our nation’s newest crop of entrepreneurs. We can do this by making it clear that no third-party seller can be accountable for sales tax, going forward or back, as a result of selling goods on an online retail platform.”

Online Merchants Guild is a trade association for online merchants which advocates on behalf of online merchants, ensuring have a meaningful say in the future of ecommerce policy, and by promoting and defending the constitutional rights of its members. The organization seeks to develop unity and a common voice for the diverse group of merchants who sell in the broad online marketplace, and promotes legislative processes that provide uniformity and clarity to ecommerce law.

Brief Issue Background: When online retail platforms engage in the control of marketing, customer service, returns, storage, delivery, and payment processing, they step into the shoes of the third-party seller in every meaningful respect – including the ability to collect and remit sales tax. The third-party sellers lack fundamental privity of contract with their supposed retail customers, as the customers are bound by the online retail platform’s contractual terms and conditions, not the third-party seller’s. The Supreme Court has addressed the issue of consigned inventory being placed in a state by another party, saying that the lack of purposeful availment, and the mere placement of goods into the stream of commerce does not establish nexus under the Due Process clause. This overrides any argument that physical presence creates nexus, as both Commerce Clause nexus and Due Process clause nexus are required to establish nexus, as reinforced in Wayfair.

Click Here to Download The Letter