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Taxes from remote sellers may profit CA

On Behalf of | Oct 11, 2019 | Business Litigation |

California is known for being one of the states with the highest tax rates. Subsequently, many entrepreneurs choose to live in tax havens, such as Nevada or Texas, to avoid paying state income taxes and other obligations. However, California has found a new way to capitalize on sales taxes from businesses whether that business operates from within California’s borders or not.

In the spring of this year, California’s governor signed a new law on sales tax. It required platforms like eBay and Amazon to collect sales taxes from out-of-state sellers when they sold goods to California residents. The law follows the Supreme Court’s 2018 ruling allowing states to collect taxes from online sales.

It required sellers getting at least $100,000 in revenue from California to register. However, the threshold for paying taxes currently sits at half a million dollars. This means that smaller buy-and-sell entrepreneurs online may not be affected. However, larger companies fulfilling expensive orders to California may be affected. State officials calculate that by 2021, this may bring an extra $759 million into the Golden State.

Forbes points out that California is not the only state to do this. South Dakota reportedly started this trend and many other states are expected to follow. The new California sales tax law is already in effect as of April 1, 2019. It appears that calculations may be based on the prior calendar years’ California-generated revenue.

Finally, an important note in the law is that when sellers rely on marketplace facilitators for the process of selling, the facilitator generally becomes responsible for remitting taxes, not the seller. This is why eBay and Amazon become responsible for collecting taxes on behalf of the sellers. This may help to insulate some companies from potential litigation involving the state for failure to pay.