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Amazon Gets A Billion-dollar Tax Break From A California Court

The California Court of Appeals claims that if a tax case, Grosz v. DTFA, which was decided on January 9, 2023, had been ruled in favor of the latter, it may have cost Californian business people billions of dollars in unpaid sales taxes.

It is about the sales tax collected in California by all merchants, whether offline or online. Consignment stores, whether they operate online or in actual storefronts, whose owners own third-party property but control all parts of the sale, are subject to the state’s longstanding collection responsibility. Amazon, on the other hand, gains from this change because of significant tax savings.

Through a program called Fulfillment by Amazon, Amazon processes orders for goods from third-party merchants (FBA). The California Department of Tax and Fee Administration (DTFA), as stated in the First Amended Complaint (FAC), is the state agency responsible for collecting sales and use taxes. However,

Amazon has routinely failed to do so from the clients it serves through the FBA program. Plaintiff filed a taxpayer action according to section 526a to order to obtain a ruling that the tax authority (DTFA) “had a mandatory responsibility” to assess and receive sales and use tax from Amazon.

The FAC rejected the DTFA, Amazon entities, and Amazon entities of the plaintiff. Accordingly, demurrers from responses were upheld without the opportunity to modify.

The Second Appellate District upheld the trial court’s order upholding the respondents’ demurrers in its ruling. The court clarified that neither legislation nor a rule expressly mandates that the DTFA must pursue Amazon for sales tax and use tax associated with FBA transactions.

The Revenue and Taxation Code’s Section 6015, subsection (a), makes it plain that the DTFA may classify more than one “person” as a “retailer” for purposes of a single transaction. Accordingly, the court concluded that determining whether a taxpayer qualifies as a retailer under the Sales and Use Tax Law is not a ministerial responsibility, but one that is at the discretion of the administration of the DTFA and is based on the statutory framework of the Sales and Use Tax Law.