Filed under “this is why taking care of your sales tax obligations is important,” California is taking aim at a Philly-based Amazon seller Brian Freifelder for what it claims are back sales taxes. The PA-based seller is dumbfounded, among other things, as to California’s insane tax calculation and the idea that they can scare people into paying them massive amounts of money for taxes they probably don’t actually owe.
The 36-year-old Bucks County resident recently received a jaw-dropping notice from California that he could owe as much as $1.6 million for sales tax that he didn’t collect from consumers who bought his goods through Amazon.
“It’s absurd. I haven’t sold enough inventory over time to warrant a tax bill like that. You could take every sale I’ve ever done. You could take the biggest sellers on Amazon, and I don’t think they would have a bill like that. They’re trying to scare people,”
It’ll become quite apparent soon how many states are truly still behind the 8-ball when it comes to collecting sales tax for purchases from third-party Amazon sellers on the Amazon marketplace. California is probably one of the most aggressive states when it comes to sales tax collection, sending threatening letters to sellers and small business, practically making up numbers about how much sales tax they “owe,” though the letters don’t go into detail about how they came to that conclusion.
California is arguing that as soon as Freifelder’s goods showed up at an Amazon warehouse in California, he was liable for sales tax for the sales of those goods. In common e-commerce tax parlance, this is called origin-based sales tax. Many states have variations of laws surrounding this idea, but California is by far the most aggressive and greedy when it comes to making sure they get their money.
The standout complaint in cases like this is not that California is trying to collect, but rather that sellers have no control over whether their goods end up in that state at all:
Paul Rafelson, a tax lawyer and volunteer executive director of the Online Merchants Guild, said California is hurting not just Freifelder, but thousands of small businesses nationwide.
“These guys are shipping goods off to Amazon. Amazon moves them all around, doesn’t tell them, doesn’t warn them, the State of California doesn’t even warn them, and then years later they’re stuck in this interstate commerce speed trap,” said Rafelson, whose firm, Francissen Rafelson Schick LLP, is based in Boca Raton, Fla.
California, of course, had no comment, though:
California’s elected treasurer, Fiona Ma, in March sent a letter to Gov. Gavin Newsom urging him to block the tax collectors from going after third-party sellers.
“They are not the ones responsible for uncollected taxes under state law, nor is it constitutionally permissible to impose such burdens on these businesses,” Ma’s letter said.
Freifelder says that in order to have generated this kind of liability, he would have had to sell upwards of $15-20 million in goods in California alone, a ratio that would come from the likes of over $150 million in sales nationwide.