California collects INCOME tax on FBA Sellers who don't live in California
Our accountant is very frustrated as he was trying to respond to a request by the California tax authorities for us to file and pay income tax in California. He explained that the business is not located in California. It didn’t matter. They are still forcing us to pay income tax due to the fact that we did FBA in California. My accountant listed case law that prohibited that and the California tax representative just said: “You might have a good case if you take us to court!” … Anyhow, who is going to do that, so we are going to pay. Since we no longer do FBA, it doesn’t make sense to fight it … Sibylle
California collects INCOME tax on FBA Sellers who don't live in California
Our accountant is very frustrated as he was trying to respond to a request by the California tax authorities for us to file and pay income tax in California. He explained that the business is not located in California. It didn’t matter. They are still forcing us to pay income tax due to the fact that we did FBA in California. My accountant listed case law that prohibited that and the California tax representative just said: “You might have a good case if you take us to court!” … Anyhow, who is going to do that, so we are going to pay. Since we no longer do FBA, it doesn’t make sense to fight it … Sibylle
Seller_AeetR16jsfbDr
Hello Avianweb, sorry to hear about this. A couple of thoughts, the income tax that California seeks would be a % of your net profits from California sales, minus any state income tax you pay in your own state.
For example, if you had $1,000 of net profit; 10% of your sales were in California, you would potentially owe $100, less any state income taxes paid in your current home state. If your home state was South Carolina, which has an 8% income tax, you would potentially owe 4% more to California, on your California only sales.
It’s a tricky tax rule but if you have products in CA, you are considered to have a warehouse and therefore “ALL” your CA sales, including FBM would potentially be subjected to CA taxes, not just FBA sales. If you have zero FBA warehouse items you are probably safe from CA income taxes for now.
Further, CA has tax offices all over the country, not just in CA, so CA can easily collect out of state taxes both Sales Tax and Income Tax.
I would imagine there are CPA tax specialists that focus on these type of transactions. Make sure you respond to the Franchise Tax Board and send it certified mail. Sometimes it takes 6 to 9 months for the CA to respond to your written letters.
Good Luck!
102 respostas
Seller_T5Mv3ZCUSh7Zl
Pay it or go to court. After doing the math, you’ll just pay.
Seller_rRA5EhIMX7fGg
The ABA published a good article about this in December 2016. I know posting links here can be a problem, but the article is called " What Non-Californians Need to Know about California Taxes" by Robert Wood.
Seller_Ri0SgMO3rxlYn
I remember from somebody a few months ago on another topic on the forum, that an accountant explained to them that the state considers Amazon’s warehouse as “nexus” on the state if you use FBA there… Not my area, and not sure if that’s even a valid explanation, but just came to mind.
Seller_OW1mtBcWgecne
It’s a very good read espeically if your case is simliar to the above thread,
Try to seek a second opinion from somone with agent creditial, sometime retired State / IRS agent that open their own pratice have connections and agency specific knowledge that are better suited to deal with this than regular accountant.
Seller_3N7yVnTXPzLkL
California state courts will need to rule on whether your product in FBA creates a nexus, requires you register as a foreign corporation or pay non-resident income tax.
IMO this is not an IRS issue, not a Federal issue, This is a state issue to be resolved by state courts.
I bet on the state prevailing. Even in Federal Court.
Wayfair was a sales tax issue, and it motivated the marketplace tax which was an alternate way for the states to collect.
Seller_CW0P5hgbsiqWX
You are paying Amazon FBA, to operate your business in your name, holding your products in fulfillment centers, located in the State of Cailfornia. State sales tax is being collected on your in state sales and recorder on your printed invoices.
It almost looks like you are operating a retail business in California and just have not obtained a license to do so, doesn’t it. I use FBM and I pay state income tax in the state in which my business operates. If it catches on, all states will soon jump on the band wagon.
Seller_cMvpORwUyvKFH
Keep in mind you already pay state income tax (most states).
This would subtract off that total dividing it appropriately.
The only difference will be the tax rate between your state and CA’s tax rate.
You’re not going to pay state income tax twice on your revenues.
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