News and Insights

California Finalizes Marketplace Facilitator Regulation

Tax Development Sep 05, 2023

California Finalizes Marketplace Facilitator Regulation’ Income

Effective August 28, 2023, the Office of Administrative Law approved the California Department of Tax and Fee Administration’s (CDTFA’s) adoption of Regulation 1684.5, Marketplace Sales. The regulation was originally effective June 29, 2020, as an emergency regulation to address undefined terms, new registration requirements that began in 2019, and where the responsibility for collection rests. Since the emergency regulation was repealed by operation of law on June 29, 2022, the CDTFA held public hearings to solicit taxpayer comments. As the text of the new regulation is virtually unchanged from the emergency regulation, it appears that the CDTFA rejected all public comments in the final regulation.

In implementing the Marketplace Facilitator Act, the regulation defines terms and clarifies registration requirements for marketplace facilitators and marketplace sellers. It specifies when a marketplace facilitator will be considered a seller and retailer of property and when an advertiser is not required to register with the CDTFA and to pay sales tax or collect and remit use tax on sales. The regulation also authorizes delivery network companies to elect to be deemed marketplace facilitators.

Wondering what to do during the two months between the repeal of the emergency regulation and the adoption of the final regulation? According to the CDTFA, “it is recommended that you follow the new regulation for interpretation of the related statutes during this time period. Revenue and Taxation Code § 7051, Enforcement by board; rules and regulations, states: The board shall enforce the provisions of this part and may prescribe, adopt, and enforce rules and regulations relating to the administration and enforcement of this part. The board may prescribe the extent to which any ruling or regulation shall be applied without retroactive effect. In other words, when the Department wishes to limit the retroactive effect of a regulation, or amendments thereto, it is authorized to do so, and would accomplish it by taking affirmative action in the regulatory process by means of specifying an operative date for the amendments.”

We will keep you posted on further developments on this issue. Contact one of the Ryan tax experts listed below with any questions.

TECHNICAL INFORMATION CONTACTS:

Mark Nachbar
Principal
Ryan
630.515.0477
mark.nachbar@ryan.com

Gina Rodriquez
Principal
Ryan
916.414.0400
gina.rodriquez@ryan.com

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.