California Enacts New Law for Remote Sellers and Marketplace Facilitators


California has enacted a new law creating an economic nexus threshold for remote sellers and marketplace facilitators, requiring sellers that exceed $500,000 of sales in California to collect a sales tax.  The new threshold is effective April 1, 2019.  The prior threshold, which administratively imposed a threshold of $100,000 or 200 transactions, is now superseded by this legislation.
Go to BDO’s Wayfair landing page for an analysis on the Wayfair decision, along with a detailed state-by-state analysis on each state’s economic nexus threshold.



On April 25, 2019, the California governor signed A.B. 147 into law, imposing an economic nexus threshold of $500,000 on remote sellers, marketplace facilitators, and marketplace sellers.  Unlike many other states that currently include a transactional test, California did not adopt such a test.  Rather, the threshold was implemented by amending the definition of a “retailer engaged in business in this state.” 
Before A.B. 147 was enacted, the California Department of Tax and Fee Administration (CDTFA) issued Special Notice L-565 to administratively impose an economic threshold on remote sellers by invoking the “long-arm” provisions of the California sales tax code.  In that Special Notice, the CDTFA adopted the widely accepted thresholds, in light of Wayfair, of $100,000 sales or 200 separate transactions.  Those thresholds now have been superseded by the enactment of A.B. 147.
Effective April 1, 2019, Cal. Rev. & Tax. Code, Section 6203(c)(4) is amended to specify that a retailer also includes:

  • Any retailer that, in the preceding calendar year or the current calendar year, has total combined sales of tangible personal property for delivery in California by the retailer and all persons related to the retailer that exceed $500,000.

  • A person is related to another person if both persons are related to each other pursuant to Section 267(b) of Title 26 of the IRC and its regulations.

Sales tax is a transaction tax, and it has traditionally been imposed on a legal entity-by-entity, separate transaction basis.  It is too early to tell whether the “related-party” aggregation of sales to satisfy economic nexus thresholds is a new trend for determining economic nexus.  Virginia also recently began requiring remote sellers and other related/affiliated entities to combine their sales for purposes of the Virginia threshold.  Likewise, California’s new statute also includes a related party aggregation provision to determine when the $500,000 sales threshold has been satisfied, which references Section 267(b). 
In addition to creating economic nexus provisions, the Marketplace Facilitator Act was also adopted under A.B. 147.  A marketplace facilitator is the retailer of tangible personal property sold through its marketplace.  Beginning October 1, 2019, marketplace facilitators will be required to collect a sales tax if their cumulative sales for delivery in California exceed $500,000.  To calculate cumulative sales, the marketplace facilitator must include its own sales, along with sales made through its marketplace on behalf of its marketplace sellers.  The marketplace facilitator may be relieved from collection responsibilities if it meets the requirements in A.B. 147.
As in most states with marketplace facilitator rules, California does not require a marketplace seller of the facilitator’s network to collect a sales or use tax on sales made through the online marketplace.  However, if the marketplace seller makes direct sales into California separate from its online marketplace sales, then it is responsible for collecting a sales tax if it has substantial nexus.  In calculating the marketplace sellers’ $500,000 economic nexus threshold, both sales made through the online marketplace and the sellers’ direct sales are counted.  If the marketplace seller exceeds the $500,000 threshold, then it is only responsible for collecting a sales tax on direct sales, rather than sales made through the marketplace, which remain the responsibility of the marketplace facilitator.

BDO Insight

  • The thresholds discussed in this article only apply to remote sellers that do not have physical presence in California.  If the remote seller had physical presence in a state before exceeding that state’s economic nexus rule, the seller may still have nexus for sales tax purposes.  In that scenario, the seller should perform an exposure analysis and consider mitigation strategies, such as voluntary disclosure agreements or amnesty programs.

  • Even though California’s threshold has increased from $100,000 to $500,000, remote sellers should be aware that when calculating the total sales delivered in California, they now must include any related party sales.



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