So you operate a website with links selling other companies products... You may now be a “Marketplace Facilitator” responsible for collecting and paying tax on retail sales in CA.
Beginning October 1, 2019, a new California law generally provides that a marketplace facilitator is responsible for collecting and paying the tax on retail sales made through their marketplace for delivery to California customers. A marketplace includes a physical or online place where marketplace sellers sell or offer for sale tangible merchandise for delivery in California. A marketplace facilitator is generally the operator of the marketplace. This new law is referred to as the Marketplace Facilitator Act, added by Assembly Bill 147 (Stats. 2019, ch. 5) and amended by Senate Bill 92 (Stats. 2019, ch. 34).
If you operate a marketplace or sell tangible merchandise through a marketplace, this guide will help you understand the new law and how it affects your sales and use tax registration, collection, and payment responsibilities.
General Definitions of Terms
The following are the general definitions for terms used in the Marketplace Facilitator Act:
Marketplace a physical or electronic place where a marketplace seller sells or offers for sale tangible merchandise for delivery in this state. Marketplace facilitator in general, a person who contracts with marketplace sellers to facilitate the sale of the marketplace sellers' products through a marketplace operated by the person or a related person when other statutory requirements are met.
Marketplace seller a person who has an agreement with a marketplace facilitator and makes retail sales of tangible merchandise through a marketplace owned, operated, or controlled by a marketplace facilitator.
Delivery network company a business entity that maintains an internet website or mobile application used to facilitate delivery services for the sale of local products to customers within a 75 mile range from the local merchant. A delivery network company, as defined in the Marketplace Facilitator Act, is not a marketplace facilitator unless it elects to be a marketplace facilitator.
The above terms are defined in the Marketplace Facilitator Act in Revenue and Taxation Code sections 6041-6041.5.
Note: *A person is related to a retailer if they have a relationship with the retailer described in Internal Revenue Code section 267 (b) and the related regulations.
General Registration Requirements
A person, including a marketplace facilitator or a marketplace seller that is actively engaged in selling tangible personal property in this state is required to register with the California Department of Tax and Fee Administration (CDTFA) for a seller's permit. Additionally, a person who is engaged in business in this state under Revenue and Taxation Code section 6203 because they have a sufficient physical presence in California or economic nexus with California is required to register with the CDTFA for a Certificate of Registration – Use Tax, collect use tax from their purchasers, and file regular sales and use tax returns.
Marketplace Facilitators' Requirements
Beginning October 1, 2019, a marketplace facilitator is considered the seller and retailer for each sale facilitated through its marketplace, for example, an Internet shopping website, to determine whether the marketplace facilitator is required to register with the CDTFA for a seller's permit or Certificate of Registration – Use Tax (see General Registration Requirements heading).
Marketplace Sellers' Requirements
If you are a marketplace seller, beginning October 1, 2019, you will no longer be considered the retailer of your sales of tangible merchandise facilitated through a marketplace, as defined by statute, provided the marketplace facilitator is registered or required to be registered for a seller's permit or Certificate of Registration – Use Tax.
Purchases for Resale by Marketplace Sellers (and Drop Shipments)
If you are a marketplace seller that is not required to be registered with the CDTFA as a seller or retailer because all your sales of merchandise are facilitated by a marketplace facilitator that is registered as a retailer with the CDTFA, you may still purchase items for resale from your supplier.
Marketplace Facilitator – Defined
A person, other than a delivery network company (see Delivery Network Companies heading below) is a marketplace facilitator if they contract with marketplace sellers to facilitate the sale of the marketplace sellers' product through a marketplace operated by the person or a related person for a fee or other consideration and perform certain activities (discussed below) directly or indirectly through related persons.
Additional Special Taxes and Fees May Apply to Certain Items
As a marketplace facilitator or a marketplace seller, you should be aware that additional fees are imposed on the purchase of certain items for storage, use, or other consumption in California and that the Marketplace Facilitator Act does not apply to the collection of the additional fees.
Not Marketplace Facilitators
A newspaper, internet website, etc., that advertises tangible merchandise for sale, refers the purchaser to the seller by telephone, internet link, or other similar means to complete the sale and does not participate further in the sale is not a marketplace facilitator for purposes of the sale.
Delivery Network Companies
Delivery network companies are not marketplace facilitators for purposes of the Marketplace Facilitator Act. However, a delivery network company may elect to be deemed a marketplace facilitator.
District tax collection requirements
The total sales and use tax rate is not the same throughout California. Total sales and use tax rates may be higher than the 7.25 percent statewide base rate in areas where there are voter-approved district taxes. All retailers that are registered or required to be registered with the CDTFA are responsible for collecting and paying the use tax at the statewide rate, on their taxable retail sales of tangible merchandise for delivery in California. Retailers engaged in business in a taxing district are also required to collect that district's use tax on their sales for delivery into the district and remit it to the CDTFA so it can be distributed to the taxing districts.
FAQs (Frequently Asked Questions)
The following is a list of questions and answers that may help you understand the Marketplace Facilitator Act. Please check back as we may add new questions and answers as they arise.
Laws and Regulations
Industry Guide: Out-of-State Retailers
Please Note: The general information provided is not intended to replace any law or regulation. This website summarizes the law and applicable regulations in effect when it was published. However, changes in the law or regulations may have occurred. If there is a conflict between this document and the law, decisions will be based on the law.
Click here for more information: http://www.cdtfa.ca.gov/industry/MPFAct.htm