As reported earlier this year, the Second Appellate District of the California Court of Appeals ruled that the California Department of Tax and Fee Administration (CDTFA) had broad discretion in tax matters, including the legal discretion to determine who is responsible for sales and use tax, i.e., who owes the tax, who collects the tax, how it is collected, and when it is collected.
On April 26, 2023, the California Supreme Court denied the appellant’s petition for review of the appeals court’s decision, allowing Amazon to keep its sales tax win.1
Within the framework of Amazon’s Fulfillment by Amazon (FBA) program, the appellant sought to require the CDTFA to treat Amazon as the retailer responsible for sales tax under California Sales and Use Tax Law. The California Court of Appeals determined that taxpayers have no authority to instruct the CDTFA on this matter. The appellate court concluded, “[T]here is no statute or regulation that conclusively establishes that the [C]DTFA must pursue Amazon for sales and use taxes related to FBA transactions. Indeed, the language of Revenue and Taxation Code section 6015, subdivision (a) makes it clear that there may be multiple ‘persons’ (as that term is statutorily defined) who the [C]DTFA may regard as ‘retailers’ for the purposes of a single transaction. The statutory framework of the Sales and Use Tax Law and the statutes vesting the [C]DTFA with authority to administer that statutory framework also generally lead us to conclude that whether a taxpayer is a retailer for purposes of the Sales and Use Tax Law is a discretionary determination and not a ministerial task.”2
The issues in this case predate California’s Wayfair-inspired3 marketplace facilitator rules, which likely would have resolved sales-tax-responsibility issues had they been in force. However, since a retailer is responsible for applicable sales tax,4 the appellate court ruling—and the California Supreme Court’s pass—has seemingly created an uphill battle for third-party FBA program participants where CDTFA’s discretion treats them as retailers responsible for multiple years of sales tax.
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1 Stanley E. Grosz v. California Department of Tax and Fee Administration (Amazon Services), Cal. No. S278685, review denied April 26, 2023.
2 Stanley E. Grosz v. California Department of Tax and Fee Administration (Amazon Services) (January 9, 2023), 87 Cal.App.5th 428, 448-449.
3 South Dakota v. Wayfair, Inc., 138 S. Ct. 2080, June 21, 2018.
4 Cal. Rev. & Tax. Code § 6051.